Are the replacement parts for a ready-mix concrete mixing unit exempt from sales tax, and is the rental of trucks hired to deliver the concrete taxable?

Plain-English summary

Gilford Construction Corporation runs a ready-mix concrete plant: cement, sand, stone or gravel and water go into mixing tanks mounted on truck chassis and are mixed to make the finished concrete, which Gilford delivers to customers (collecting tax on the concrete). Sometimes Gilford hires additional trucks to deliver. It asked (1) whether replacement parts, belts and the like for the mixing equipment are exempt, and (2) whether the hired delivery trucks are taxable.

The Department split the vehicle in two — the mixer is production equipment, the truck is not.

• Mixing unit = exempt production machinery. The mixing unit qualifies for the § 1115(a)(12) manufacturing exemption. So replacement parts, equipment, belts and the like for the mixing unit are exempt from local taxes (except the New York City tax) and, effective March 1, 1981, from the statewide sales and use tax as well — with a 2% statewide rate for purchases between September 1, 1980 and February 28, 1981 under the § 1105-B phase-out.
• Truck chassis = taxable. The truck chassis and its components (motor, transmission, etc.) are not used directly and predominantly in production, so replacement parts for them are taxable.
• Hired trucks are taxable rentals — but with carve-outs. Renting trucks to deliver the concrete is a taxable "sale" (rental) under § 1101(b)(5). However:
  • A separately stated charge for the driver's services is not taxable if reasonable in relation to prevailing wage rates.
  • If the billing separates the truck from the mixing unit and the charges are reasonable, the mixing-unit portion can be rented exempt with an Exempt Use Certificate (Form ST-121).
  • The truck portion is taxable, and under 20 NYCRR 530.4 — where the lessor pays all registration fees and insurance — tax is due on 82% of that rental charge (90% within New York City).

What this means for you

One vehicle can be two things for tax. A truck-mounted mixer is part production machinery, part motor vehicle. The mixing unit that actually makes the concrete earns the manufacturing exemption; the chassis that carries it down the road doesn't. Track and buy parts for each separately — don't assume the whole rig is exempt just because it produces your product.

How the invoice is written changes the tax. On hired trucks, a separately stated, reasonable driver charge escapes tax, and splitting out the mixing-unit portion lets you claim exemption on it with an ST-121. If everything is lumped together, you lose those breaks. Ask lessors to itemize.

Know the 82%/90% rental base. When you rent a vehicle and the lessor covers registration and insurance, New York taxes 82% of the rental charge (90% in New York City) rather than the full amount under 20 NYCRR 530.4 — a detail worth checking on every truck-rental invoice.

Common questions

Q: My mixer is mounted on a truck — are parts for the whole thing exempt?
A: No. Parts for the mixing unit qualify for the § 1115(a)(12) production exemption, but parts for the truck chassis and its components (motor, transmission, etc.) are taxable because the chassis isn't used directly in production.

Q: Is the driver's charge on a hired truck taxable?
A: Not if it's separately stated and reasonable in relation to prevailing driver wage rates. The truck-rental portion is still taxable.

Q: How is a truck rental taxed if the lessor pays registration and insurance?
A: Under 20 NYCRR 530.4, tax is due on 82% of the rental charge (90% within New York City). If the mixing unit is separately billed and reasonable, that portion can be rented exempt with Form ST-121.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — tax on retail sales; § 1101(b)(5) — definition of "sale," including rental/lease
• Tax Law § 1115(a)(12) — machinery/equipment used directly and predominantly in production; § 1105-B — statewide phase-out for parts, tools and supplies
• 20 NYCRR 530.4 — taxable base for motor vehicle rentals (82% / 90% in NYC); Exempt Use Certificate (Form ST-121)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_27s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81 (27) S
Sales Tax
September 24, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810505B

On May 5, 1981 a Petition for Advisory Opinion was received from Gilford Construction
Corporation, 1818 Gilford Avenue, New Hyde Park, New York 11040.
The issues raised are: (1) whether replacement parts, equipment, belts, and the like used in
manufacturing ready-mix concrete are exempt from sales tax, and (2) whether trucks hired by
Petitioner to deliver ready-mix concrete are subject to tax.
Petitioner operates a ready-mix concrete manufacturing plant where cement, sand, stone or
gravel, and water are placed in mixing tanks mounted on truck chassis and mixed to form the
finished product. Petitioner delivers this material and collects tax from its customers. At times,
Petitioner must hire additional trucks to deliver finished concrete to the ultimate customer.
Section 1115(a)(12) of the Tax Law exempts from tax: "Machinery or equipment for use or
consumption directly and predominantly in the production of tangible personal property by
manufacturing, processing but not including parts with a useful life of one year or less or tools or
supplies used in connection with such machinery, equipment or apparatus."
Section 1105-B of the Tax Law provides a phase-out of the statewide tax on purchases of
certain parts, tools, supplies and services to tangible personal property used or consumed in
production. Subdivision (a) of such section states: ". . . receipts from the retail sales of parts with a
useful life of one year or less, tools and supplies for use or consumption directly and predominantly
in the production of tangible personal property . . . for sale by manufacturing, processing . . . shall
be exempt from such tax on and after March first, nineteen hundred eighty-one." Similarly, Section
1105-B provides that with respect to purchases of such items and services made between September
1, 1980 and February 28, 1981, the statewide tax shall be two per cent. The tax imposed within the
City of New York is not affected by this phase-out and taxes imposed by other localities on services
to exempt tangible personal property remain imposed.
Section 1105(a) of the Sales Tax Law imposes a tax on: "The receipts from every retail sales
of tangible personal property . . . ".
Section 1101(b)(5) of the Sales Tax Law defines a sale as: "Any transfer of title or possession
or both, exchange or barter, rental, lease or license to use or consume, in any manner for a
consideration, . . ."

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81 (27) S
Sales Tax
September 24, 1981

The vehicles in question consist of a truck chassis with a mixing unit mounted thereon. The
mixing unit qualifies for the production exemption provided in Section 1115(a)(12) of the Tax Law;
however, such exemption is not applicable to the truck chassis and its components (motor,
transmission, etc.)
Accordingly, Petitioner's purchases of replacement parts, equipment, belts etc. for the mixing
unit which is used directly and predominantly in the production of ready-mixed concrete by
manufacturing are exempt from local taxes other than the New York City tax and, effective March
1, 1981, are also exempt from the statewide sales and use tax. For the period from September 1, 1980
through February 28, 1981, such purchases were exempt from local taxes (except the New York City
tax) but subject to the statewide tax at the rate of two per cent. However, purchases of similar
replacement parts for use in the truck chassis and its components (motor, transmission, etc.) are not
used directly and predominantly in production and are thus subject to tax.
In addition, the rental of trucks by Petitioner to deliver ready-mix concrete to customers is
subject to tax. When the trucks are provided to Petitioner with a driver and the vendor's billing shows
a separately stated charge for the services of the driver, such amount is not subject to tax, if it is
reasonable in relation to prevailing wage rates for drivers. Also, if the billing for the truck rental is
further segregated to a charge for the truck and a charge for the mixing unit and such amounts are
reasonable in relation to the purchase price of each, the rental charge applicable to mixing unit would
be exempt provided a properly completed Exempt Use Certificate (Form ST-121) is furnished to the
lessor. The portion of the rental charge applicable to the truck is taxable and, pursuant to the Sales
and Use Tax Regulations, provided the lessor pays all vehicle registration fees and all vehicle
insurance, tax is due on eighty two per cent (ninety per cent within New York City) of such rental
charge. 20 NYCRR 530.4.

DATED: August 26, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau