Can a monument and memorial maker buy its tools, parts and supplies tax-exempt under the manufacturing exemption, and does it matter whether it also installs the monuments?

Plain-English summary

The New York State Monument Builders Association asked whether the machine parts, tools, equipment and supplies used to produce, fabricate and process monuments and memorials are exempt from sales and use tax. The answer hinges on the difference between making a monument (which can be exempt production) and installing it (which is work on real property).

The Department held:

• Installing a monument is a capital improvement. Setting a monument or memorial is a capital improvement to real property under § 1101(b)(9) / 20 NYCRR 527.7(a)(3). That means the sale of the monument or its component materials to the installer is a taxable retail sale under § 1101(b)(4) — the installer is treated as the end consumer.
• The manufacturing exemption depends on the builder's predominant business. The § 1115(a)(12) / § 1105-B production exemption is available only if the builder's activities are predominantly the manufacture of monuments for sale uninstalled:
  • If the builder predominantly sells and installs monuments, all of its office supplies, shop supplies, foundation supplies and equipment-repair services are taxable.
  • If the builder predominantly sells monuments uninstalled, it may issue an Exempt Use Certificate (Form ST-121) and buy tax-exempt a long list of production tools and supplies — layout and stencil tools, machine and hand tools, abrasives, polishing wheels and powders, glue and solvents, dust masks, and repairs to shop equipment like compressors, grinders and sandblast equipment. Layout paper, carbon paper, film and toner also qualify to the extent used directly in production (as "directly" is defined in 20 NYCRR 528.13(c)).
• Fuel: production yes, heating no. Fuel consumed exclusively in a compressor used to produce monuments is exempt under § 1115(c); fuel for heating is taxable.
• Foundation and setting supplies are always taxable. Setting compound, sand, cement and concrete used to set the monument are taxable under §§ 1101(b)(4) and 1105(a), as are repairs to office equipment and shop heaters (unless the equipment itself qualifies under § 1115(a)(12)).
• Phase-out timing. Under § 1105-B, the statewide tax on qualifying parts, tools and supplies (and the services of installing/repairing/servicing them) was fully phased out effective March 1, 1981 (2% for purchases from September 1, 1980 through February 28, 1981). The New York City tax is unaffected by the phase-out.

What this means for you

Whether you "manufacture" or "install" decides your exemption. For a monument business, the pivotal question isn't what you buy — it's what you predominantly do. A shop that mostly makes monuments to sell uninstalled can buy its production tools and supplies exempt with an ST-121. A business that mostly sells-and-installs is treated as a contractor/consumer, and its shop and office supplies are all taxable.

Installation is real-property work, so someone pays tax on the stone. Because setting a monument is a capital improvement, the monument and its materials are taxable when sold to the installer. You don't collect tax from the cemetery customer on a capital improvement, but the tax is built in upstream on the materials.

Keep exempt production separate from taxable setting. Even a qualifying manufacturer still owes tax on foundation and setting supplies (compound, sand, cement, concrete) and on fuel used for heating. The exemption is for the production side — carving, polishing, sandblasting — not for setting the finished stone in the ground.

Common questions

Q: We both make and install monuments — can we buy our tools tax-free?
A: Only if your predominant business activity is manufacturing monuments for sale uninstalled. If you predominantly sell-and-install, your shop, office and foundation supplies and equipment-repair services are taxable.

Q: What can a qualifying manufacturer buy exempt?
A: With an Exempt Use Certificate (Form ST-121), the production tools, abrasives, polishing supplies, solvents and repairs to shop equipment listed in the opinion — plus paper/film/toner to the extent used directly in production. Fuel used exclusively in a production compressor is also exempt.

Q: Is the sand, cement and setting compound exempt?
A: No. Foundation and setting supplies are taxable under §§ 1101(b)(4) and 1105(a), even for a qualifying manufacturer, because they're used to set the monument (a capital improvement), not to produce it.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(a) — tax on retail sales; § 1101(b)(4) — sale to a contractor/installer deemed a retail sale; § 1101(b)(9) — capital improvement
• Tax Law § 1115(a)(12) — production machinery/equipment; § 1115(c) — fuel used exclusively in production; § 1105-B — statewide phase-out for parts, tools, supplies and related services
• 20 NYCRR 527.7(a)(3) — capital improvement; 528.13(c)(1) — "directly"; 528.13(c)(4) — "predominantly" (over 50%); 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_28s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81 (28) S
Sales Tax
October 5, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810514A

On May 14, 1981, a Petition for Advisory Opinion was received from New York State
Monument Builders Association, Inc., 10 Marble Place, Ossining, New York 10562.
The issue raised is whether certain machine parts, tools, equipment and supplies used to
produce, fabricate and process monuments and memorials are exempt from the sales and
compensating use tax.
Section 1105(a) of the Tax Law imposes a tax on: "The receipts from every retail sale of
tangible personal property, except as otherwise provided in this article." Section 1115(a)(12)
exempts from tax: "Machinery or equipment for use or consumption directly and predominantly in
the production of tangible personal property . . . for sale, 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 . . ." Fuel used directly and exclusively in the production of tangible personal
property for sale is also exempt pursuant to section 1115(c) of the Tax Law.
The Sales and Use Tax Regulations provide that "Machinery or equipment is used
predominantly in production, if over 50% of its use is directly in the production phase of a process."
20 NYCRR 528.13(c)(4). The Regulations also define "directly" to mean "the machinery or
equipment must, during the production phase of a process,
(i)

act upon or effect a change in material to form the product to be sold, or

(ii)

have an active causal relationship in the production of the product to be sold, or

(iii)

be used in the handling, storage, or conveyance of materials or the product to be sold,
or

(iv)

be used to place the product to be sold in the package in which it will enter the stream
of commerce." 20 NYCRR 528.13(c)(1).

Section 1105-B of the Tax Law provides a phase-out of the statewide tax on purchases of
certain parts, tools and supplies 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, 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

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

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

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TSB-A-81 (28) S
Sales Tax
October 5, 1981

purchases of such items made between September 1, 1980 and February 28, 1981, the statewide tax
shall be two percent. The tax imposed within the City of New York is not affected by this phase-out
and these items continue to remain exempt from taxes imposed by all other localities. Section 1105B also provides the same phase-out of the statewide tax on charges for installing, repairing, servicing
and maintaining machinery, equipment, replacement parts, tools and supplies which are exempt from
tax pursuant to sections 1115(a)(12) and 1105-B of the Tax Law. However, such services remain
subject to all local taxes.
In defining the term "retail sale" the Tax Law states: "a sale of any tangible personal property
to a contractor, subcontractor or repairman for use or consumption in erecting structures or building
on, or otherwise adding to, altering, improving . . . real property, property or land, as the terms real
property, property or land are defined in the real property tax law, is deemed to be a retail sale
regardless of whether the tangible personal property is to be resold as such before it is so used or
consumed." Tax Law § 1101(b)(4).
The Tax Law and the Sales and Use Tax Regulations define the term "capital improvement"
as ". . . an addition or alteration to real property (i) which substantially adds to the value of the real
property, or appreciably prolongs the useful life of the real property, and (ii) which becomes part of
the real property or is permanently affixed to the real property so that removal would cause material
damage to the property or article itself, and (iii) is intended to become a permanent installation." Tax
Law § 1101(b)(9) and 20 NYCRR 527.7(a)(3).
The installation of a monument or memorial is a capital improvement to real property. As
such, the sale of the monument or memorial or its component materials to an installer is a retail sale
pursuant to section 1101(b)(4) of the Tax Law which is subject to the tax imposed in accordance
with section 1105(a).
When the installer is also the builder of the monument, the manufacturing exemption
provided in sections 1115(a)(12) and 1105-B of the Tax Law is not applicable unless the builder's
activities are predominantly the manufacture of monuments and memorials for sale uninstalled. If
the predominant business activity of the builder is the sale and installation of monuments and
memorials, all purchases of office supplies, shop supplies, foundation supplies and equipment repair
services are subject to statewide and local taxes.
Provided the predominant business activity is the sale of monuments uninstalled, the builder
is entitled to the manufacturing exemption set forth in section 1115(a)(12) and 1105-B of the Tax
Law. In such instances, the builder may purchase the following replacement parts, tools, supplies and
repair services tax exempt by issuing a properly completed Exempt Use Certificate (Form ST-121)
to the supplier:
Layout tools

Carbide-tipped and other machine tools

Rubber stencil

Carbide-tipped and other hand tools

Rubber stencil filler (glue)

Air hoses and fittings

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TSB-A-81 (28) S
Sales Tax
October 5, 1981
Stencil knives and blades

Mineral and other glue solvents

Plastic stencil letters & designs

Granite cleaner

(Stencil Cutting Machine)

Scrub brushes and sponges

Glue containers and brushes

Detergent cleansing agents

Steeling shot

Nylon and canvas stone handling slings

Sandblast abrasive

Litho and other coloring agents

Wire sawing abrasive

Stone mending adhesives

Sandblasting nozzles

Stone cutters chalk, pencils, etc.

Stone sawing wire

Repairs, including parts,
to miscellaneous

Diamond sawing blades

shop equipment such as:

Dust masks and filters

Compressors

Scroll and steeling wheels

Stencil Cutting Machines

Emery rings

Hand Trucks & Dollies

Finishing rings

Wire Saws

Polishing wheels and buffers

Grinders

Tin Oxide and
other Polishing Powders

Polishing Machine

Abrasive Wheels

Sand Blast Equipment

Abrasive Stones (Hand)

Slab Splitter

To the extent that layout paper, carbon paper, rubbing paper, film and photocopy paper and
toner - listed on office supplies - are used directly in production, as the term "directly" is defined in
Sales and Use Tax Regulation 528.13(c), such items may also be purchased tax exempt by issuing
a properly completed Exempt Use Certificate (Form ST-121) to the supplier.
Fuel consumed exclusively in a compressor which is used in the production of monuments
or memorials for sale may be purchased tax exempt. Tax Law § 1115(c).

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TSB-A-81 (28) S
Sales Tax
October 5, 1981
However, the purchase of fuel for heating purposes is subject to the tax imposed pursuant to section
1105(a) of the Tax Law. Repairs to office equipment, including a photocopier, and shop heaters are
taxable unless such equipment is eligible for exemption pursuant to section 1115(a)(12) of the Tax
Law. Purchases of setting compound, sand, cement and concrete - identified as foundation and
setting supplies - are also subject to the tax. Tax Law §§ 1101(b)(4) and 1105(a).

DATED: September 18, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau