How did New York's production exemptions apply, over time, to a New York City manufacturer's purchases of tools, supplies and welding gases — and did the city tax still apply?

Plain-English summary

World Display Fixtures Corporation, a New York City manufacturer of metal and wood store display fixtures, asked how the State and New York City sales taxes apply to the tools, supplies and cylinders of welding gases it uses in production.

The Department walked through the production exemptions — all of which spare the State tax but not the New York City tax.

• Production machinery is State-exempt, but not tools and supplies. Section § 1115(a)(12) exempts machinery or equipment used directly and predominantly in production for sale — but it excludes parts with a useful life of one year or less, tools and supplies. This exemption applies to the State tax (§ 1105(a)), not the New York City tax (§ 1107(a)).
• Section 1105-B phased in an exemption for those excluded items. A new § 1105-B (added in 1979) provided a reduction and then exemption from the State (not NYC) tax on parts (one year or less), tools and supplies used directly and predominantly in production for sale. The rate was reduced to 2% for September 1, 1980 through February 28, 1981, and the items became exempt as of March 1, 1981.
• So the tools and supplies followed a timeline. Purchased before September 1, 1980: 4% State + 4% NYC. Purchased September 1, 1980 – February 28, 1981: 2% State + 4% NYC. Purchased after February 28, 1981: State-exempt, still 4% NYC.
• Welding gases were always State-exempt. Section § 1115(c) exempts gases used directly and exclusively in production for sale. So World Display's welding gases (used directly and exclusively in manufacturing) were exempt from the State tax at all times, but were subject to the 4% New York City tax.
• Definitions. The opinion applied the regulatory meanings of "directly," "predominantly" (over 50%), "production," "part," "tool" and "supply" in 20 NYCRR 528.13.

What this means for you

Machinery and its consumables are treated differently. Section 1115(a)(12) exempts production machinery but not the tools and supplies used with it — those got their own, later exemption under § 1105-B.

Timing matters for older purchases. The § 1105-B exemption for parts, tools and supplies phased in (4% → 2% → exempt for the State tax) across 1980–1981, so the correct treatment depends on the purchase date.

Production exemptions don't touch the New York City tax. Machinery, tools, supplies and gases could all be State-exempt yet still owe the 4% New York City tax under § 1107(a).

Gases get the strict "exclusively" standard. The § 1115(c) gas exemption requires direct and exclusive use in production for sale — met here for welding gases.

Common questions

Q: Are my production tools and supplies exempt from sales tax?
A: From the State tax, yes, on and after March 1, 1981 (with a 2% transitional rate from September 1, 1980) under § 1105-B — but the 4% New York City tax still applies.

Q: What about my production machinery itself?
A: Exempt from the State tax under § 1115(a)(12), but again not from the New York City tax.

Q: Are welding gases taxable?
A: Not for the State tax if used directly and exclusively in production for sale (§ 1115(c)) — but they're subject to the 4% New York City tax.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a); § 1107(a) — State and New York City sales taxes
• Tax Law § 1115(a)(12) — production machinery exemption (excludes short-life parts, tools, supplies; State not NYC)
• Tax Law § 1105-B(a) — 1979 phase-in exemption for parts (≤1 year), tools and supplies (State not NYC)
• Tax Law § 1115(c) — gases used directly and exclusively in production (State not NYC)
• 20 NYCRR 528.13(c)(4), (b)(1)(ii), (e) — definitions of "directly," "predominantly," "production," "part," "tool," "supply"

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_62s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81(62)S
Sales Tax
December 8, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810527B

On May 27, 1981 a Petition for Advisory Opinion was received from World Display Fixtures
Corporation, 458 East 101st Street, Brooklyn, New York 11236.
Petitioner requests clarification of the application of the State and New York City sales taxes
to the purchase of tools, supplies and welding gases used in a manufacturing process.
Petitioner is a New York City manufacturer of metal and wood store display fixtures.
Petitioner purchases tools, supplies and cylinders of welding gases, which are used in its
manufacturing process.
Section 1105(a) of the Tax Law, contained in Article 28, imposes the State sales tax of four
per cent on the "receipts from every retail sale of tangible personal property, except as otherwise
provided in this article." Section 1107(a) of the Tax Law imposes an additional four per cent sales
tax applicable within the territorial limits of New York City.
Section 1115(a)(12) of the Tax Law provides an exemption with respect to "Machinery or
equipment for use or consumption directly and predominantly in the production of tangible personal
property, . . . for sale, by manufacturing. . . , 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." This
exemption is applicable to the State sales tax imposed under section 1105(a) of the Tax Law, but not
to the New York City sales tax imposed under section 1107(a) of the Tax Law.
In 1979 a new Section 1105-B was added to the Tax Law to provide for a reduction and
subsequent exemption from the State, but not the New York City, sales tax on receipts from the retail
sale 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.
. . ." Tax Law, §1105-B(a). The tax rate was reduced to 2% for the period September 1, 1980 through
February 28, 1981, and receipts from the sale of the described property were rendered exempt as of
March 1, 1981.
The language employed in the statutory provisions quoted above is clarified in the Sales and
Use Tax Regulations promulgated by the State Tax Commission. Thus, it is there provided that:
"'Directly' means 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

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

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

-2­
TSB-A-81(62)S
Sales Tax
December 8, 1981

(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)(4).

It is further provided the "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).
"Production" is stated to include "the production line of the plant starting with the handling
and storage of raw materials at the plant site and continuing through the last step of production where
the product is finished and packaged for sale" 20 NYCRR 528.13(b)(1)(ii).
The term "part" means "a replacement for any portion of a machine or piece of equipment,
and any device actually attached to the machinery or equipment and used in connection with the
performance of its function." 20 NYCRR 528.13(e)(1)(i). The term "tool" means a "manually
operated implement for performing a task," and the term "supply" means "an item of tangible
personal property used in the maintenance of machinery or equipment and an item of tangible
personal property used or consumed in production, whose use is incidental to such production, or
which is expendable." 20 NYCRR 528.13(e)(2) & (3)
Section 1115(c) of the Tax Law provides for an exemption with respect to gases used or
consumed directly and exclusively in the production of tangible personal property, for sale, by
manufacturing. This exemption is applicable to the State sales tax imposed under section 1105(a)
of the Tax Law, but not to the New York City sales tax imposed under section 1107(a) of the Tax
Law.
Accordingly Petitioner's purchases of tools and supplies used or consumed directly and
predominantly in the production of tangible personal property for sale were subject to both State and
New York City 4% sales taxes where purchased prior to September 1, 1980; were subject to a 2%
State sales tax and the 4% New York City sales tax where purchased during the period September
1, 1980 through February 28, 1981; and are exempt from the State sales tax, but remain subject to
the 4% New York City sales tax, where purchased subsequent to February 28, 1981. Petitioner's
purchases of welding gases, where the same are for direct and exclusive use or consumption in the
manufacture of tangible personal property for sale, are and were at all times exempt from the State
sales tax imposed under Section 1105(a) of the Tax Law, but were subject to the New York City
sales tax imposed under Section 1107(a) of the Tax Law.

DATED: November 23, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau