Is the electricity a company uses to package finished, imported parts in blister packs and bags exempt as electricity used in 'manufacturing'?

Plain-English summary

Arista Enterprises, Inc., imports finished electronic parts and other items, packages them in blister packs, plastic bags, and other containers, and sells the packaged items to distributors and retail stores. It asked whether that packaging operation is "manufacturing" within the meaning of § 1115(c) — the point being to claim the exemption for electricity used in manufacturing.

The Department held the packaging is not manufacturing, so the electricity is not exempt.

• The tax and the exemption. Section § 1105(b) taxes receipts from sales (other than for resale) of electricity. Section § 1115(c) exempts electricity used "directly and exclusively in the production of tangible personal property … for sale, by manufacturing." Parallel exemptions exist under most local sales taxes — but the New York City electricity tax has no such exemption.
• What "manufacturing" means. Under 20 NYCRR § 531.2(b), "manufacturing" is "the production of tangible personal property that has a different identity from its ingredients."
• Packaging fails the test. Taking already-finished parts and putting them in blister packs and bags does not produce a product with a different identity from its ingredients. So the company's activity is not manufacturing, the electricity it uses in packaging is not used in the production of property "by manufacturing," and its purchase is not exempt under § 1115(c) or the similar local provisions.

What this means for you

Packaging finished goods is not "manufacturing." The manufacturing exemptions turn on creating a product with a different identity from its inputs. Bagging, boxing, or blister-packing goods that are already finished doesn't clear that bar.

The electricity exemption is narrow — "directly and exclusively." Section 1115(c) frees electricity only when it's used directly and exclusively in a genuine manufacturing process. If your process isn't manufacturing, the electricity you use in it is taxable.

New York City is different — no electricity exemption. Even a true manufacturer gets no break on the City's tax on electricity. Factor that in if you operate in the City.

Common questions

Q: I package products for sale. Can I buy my electricity tax-free as a manufacturer?
A: Not if packaging is all you do. Manufacturing requires producing a product with a different identity from its ingredients; packaging finished goods doesn't qualify, so the electricity isn't exempt under § 1115(c).

Q: What actually counts as "manufacturing" here?
A: Producing tangible personal property that has a different identity from its ingredients (20 NYCRR 531.2(b)) — a transformation, not just repackaging.

Q: Does the manufacturing exemption cover New York City electricity tax?
A: No. The City's tax on electricity has no manufacturing exemption, even for genuine manufacturers.

Citations and references

Statutes:

• Tax Law § 1105(b) — tax on receipts from sales (other than for resale) of electricity
• Tax Law § 1115(c) — exemption for electricity used directly and exclusively in producing tangible personal property for sale by manufacturing

Regulations:

• 20 NYCRR § 531.2(b) — "manufacturing" means producing property with a different identity from its ingredients

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a82_20s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82(20)S
Sales Tax
June 2, 1982

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

PETITION NO. S820405A

On April 5, 1982 a Petition for Advisory Opinion was received from Arista Enterprises, Inc.,
35 Hoffman Avenue, Hauppauge, New York 11787.
The issue raised is whether Petitioner's packaging of manufactured goods constitutes
"manufacturing," within the meaning of section 1115(c) of the Tax Law. It is concluded herein that
it does not.
Petitioner imports finished electronic parts and other items, packages them in blister packs,
plastic bags and other containers and sells the packaged items to distributors and retail stores.
Section 1105(b) of the Tax Law imposes a tax on the receipts from sales, other than for
resale, of electricity. Section 1115(c) of the Tax Law provides for an exemption from such tax with
respect to the purchase of among other things, "electricity . . . for use or consumption directly and
exclusively in the production of tangible personal property . . . for sale, by manufacturing . . . ."
Similar provisions are applicable under locally imposed sales taxes. No such exemption provision,
it should be noted, is applicable to the New York City sales tax on the sale of electricity.
The term "manufacturing" is defined as "the production of tangible personal property that has
a different identity from its ingredients." 20 NYCRR 531.2(b). Petitioner's activities do not fall
within this definition. The electricity used by Petitioner in the course of its packaging operation is
therefore not purchased "for use or consumption . . . in the production of tangible personal property
. . . for sale, by manufacturing." Accordingly, the purchase thereof is not exempt from tax under
section 1115(c) of the Tax Law or similar provisions applicable to locally imposed sales taxes.

DATED: May 18, 1982

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