Is a manufacturer's cost of having its own manufacturing dies modified subject to sales tax as a processing service?

Plain-English summary

Grant Hardware Company, a Division of Buildex Inc., owns dies (each with a useful life over four years) that it uses in its manufacturing process to produce parts. When it designs a new product or modifies an existing one, it customarily has an existing die modified; the modified die also lasts more than four years. Grant Hardware asked whether its cost of modifying the dies is subject to sales tax.

The Department held the die-modification service is taxable.

• Fabrication/processing services are taxable. Section 1105(c)(2) taxes the service of "producing, fabricating, processing, printing or imprinting tangible personal property" performed for a person who directly or indirectly furnishes the property (and didn't buy it for resale).
• "Processing" means changing the property. Under 20 NYCRR 531.2(e), processing is any service on tangible personal property that effects a change in the nature, shape or form of the property.
• Modifying a die is processing. Reworking Grant Hardware's own die changes its shape or form, so the modification is a taxable processing service.
• Result: the receipts from modifying the dies are subject to sales tax under § 1105(c)(2).

What this means for you

Paying someone to change your own property is often a taxable service. New York taxes producing, fabricating and processing tangible personal property that you furnish. If a vendor reworks, reshapes or alters an item you own — like a die, a tool, or a part — that labor is generally taxable as a processing service, even though you already owned the item.

"Processing" is defined broadly. Any service that changes the nature, shape or form of the property counts. You don't have to end up with a brand-new object; altering an existing one is enough to trigger the tax.

Track your fabrication/alteration invoices. Charges to modify, customize or rework equipment and tooling should generally be treated as taxable § 1105(c)(2) services unless a specific exemption applies to your situation.

Common questions

Q: The die is mine — why is modifying it taxable?
A: Because § 1105(c)(2) taxes fabrication/processing services performed on property you furnish. Reworking your own die is a service that changes its shape or form, which is taxable processing.

Q: What counts as "processing"?
A: Under 20 NYCRR 531.2(e), it's any service that effects a change in the nature, shape or form of the property. Modifying a die fits that definition.

Q: Does the die's long useful life or its use in manufacturing change the answer?
A: On these facts, no. The Department treated the modification as a taxable processing service under § 1105(c)(2) regardless of the die's multi-year useful life.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1105(c)(2) — taxes producing, fabricating, processing, printing or imprinting tangible personal property performed for the person who furnishes it
• 20 NYCRR 531.2(e) — "processing" is any service on tangible personal property that effects a change in its nature, shape or form

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_6s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81(6)S
Sales Tax
August 7, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810401C

On April 1, 1981 a Petition for Advisory Opinion was received from Grant Hardware
Company, Division of Buildex Inc., High Street, West Nyack, New York 10994.
The issue raised is whether Petitioner's cost of modifying dies used in manufacturing is
subject to sales tax.
Petitioner owns dies having useful lives in excess of 4 years. The dies are used, in Petitioner's
manufacturing process, to produce parts. When Petitioner designs a new product or modifies an
existing product, Petitioner will customarily have an existing die modified or changed. The useful
life of the "new" die will be in excess of 4 years.
Section 1105(c)(2) of the Tax Law imposes a tax on receipts from the service of "Producing,
fabricating, processing, printing or imprinting tangible personal property, performed for a person
who directly or indirectly furnishes the tangible personal property, not purchased by him for resale,
upon which such services are performed."
The term "processing" is defined in the Sales and Use Tax Regulations as follows:
"Processing is the performance of any service on tangible personal property which effects a change
in the nature, shape or form of the property." 20 NYCRR 531.2(e).
In accordance with the foregoing, receipts from the sale to Petitioner of the service of
modifying its dies are subject to tax pursuant to Section 1105(c)(2) of the Tax Law.

DATED: July 23, 1981

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

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

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