Is the electricity a manufacturer uses to light its production facility exempt from sales tax under the production exemption?

Plain-English summary

Entenmann's Inc., a manufacturer, asked whether the electricity it uses to light a production facility qualifies for the sales-tax exemption under § 1115(c).

The Department held the lighting electricity is taxable.

• The exemption is strict: "directly and exclusively." Section 1115(c) exempts electricity used directly and exclusively in producing tangible personal property for sale by manufacturing, processing, assembling, etc. This is a tougher standard than the "directly and predominantly" test for machinery.
• Lighting a building is expressly taxable. Under 20 NYCRR 528.22(a)(2), electricity used to light buildings is subject to tax. And Example 4 (20 NYCRR 528.22(c)(3)(v)) states that where a plant buys electricity both to power production machinery and to light its buildings, only the electricity powering the production machinery is used directly in production.
• Result. The receipts from Entenmann's purchases of electricity for lighting a production facility are taxable, in accord with Ellenville Handle Works (TSB-H-80(220)S), which taxed electricity used to light working areas of a plant, and Fancher Chair (TSB-A-83(11)S).

What this means for you

Powering the machines is exempt; lighting the plant is not. New York draws a clean line: electricity that runs your production equipment can qualify under § 1115(c), but electricity for lighting — even lighting the very rooms where production happens — is taxable.

"Exclusively" is doing the work here. Because lighting also serves general building and worker-comfort purposes, it can't be electricity used exclusively in production. Manufacturers claiming the exemption should meter or reasonably allocate production-machinery power separately from lighting and other building loads.

This is settled, consistently applied doctrine. The same result appears across the Department's opinions — Ellenville Handle Works and Fancher Chair — and the parallel machinery opinions (e.g., TSB-A-84(30)S, decided the same day) apply the analogous "collateral use isn't production" reasoning to equipment.

Common questions

Q: Is the electricity that runs my factory machines exempt?
A: Electricity used directly and exclusively to power production machinery can qualify under § 1115(c). This ruling addresses only lighting, which does not qualify.

Q: My lights are in the production area. Doesn't that make them part of production?
A: No. The regulations treat lighting buildings — including production buildings — as taxable. Only the power running the production machinery is "directly" in production.

Q: How should I handle a single electric bill covering both machines and lighting?
A: The exempt portion is limited to electricity used directly and exclusively in production (the machinery). Lighting and other general building loads are taxable, so you'll need a reasonable basis to separate them.

Citations and references

Statutes:

• Tax Law § 1115(c) — exemption for gas/electricity used directly and exclusively in production for sale

Regulations:

• 20 NYCRR 528.22(a)(2) — electricity used to light buildings is taxable
• 20 NYCRR 528.22(c)(3)(v), Example 4 — only electricity powering production machinery is used directly in production

Prior guidance:

• Ellenville Handle Works, Inc., TSB-H-80(220)S
• Fancher Chair Co., Inc., TSB-A-83(11)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_32s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-84(32)S
Sales Tax
October 15, 1984

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

PETITION NO. S830623A

On June 23, 1983 a Petition for Advisory Opinion was received from Entenmann's Inc., 1724
5th Avenue, Bay Shore, New York 11706.
The issue raised is whether electricity used to provide lighting in a production facility
qualifies for exemption from the sales tax pursuant to section 1115(c) of the Tax Law. Section
1115(c) of the Tax Law provides an exemption from the sales tax with respect to electricity
purchased "for use or consumption directly and exclusively in the production of tangible personal
property . . . for sale, by manufacturing, processing, assembling . . . . "
Section 528.22(a)(2) of the Sales and Use Tax Regulations, which explicates the foregoing
statutory provision, provides that electricity used in the lighting of buildings is subject to tax. The
applicability of this general statement to buildings employed as production facilities is indicated at
20NYCRR 528.22(c)(3)(v) Ex. 4, which provides as follows:
A manufacturing plant purchases electricity to power its production
machinery and also to light its buildings. Only the electricity used to
power the production machinery is used directly in production.
It follows from the foregoing that the receipts from Petitioner's purchases of electricity for
the lighting of a production facility are subject to tax. In accord with this conclusion is Matter of
Ellenville Handle Works, Inc., State Tax Commission, TSB-H-80(220)S. In that proceeding the State
Tax Commission held to be subject to tax the receipts from the purchase of electricity used to light
working areas in a manufacturing plant. See also Fancher Chair Co., Inc., State Tax Commission
Advisory Opinion, TSB-A-83(11)S.

DATED: July 11, 1984

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR