Are welding supplies used to maintain production machinery exempt, and do voltage transformers count as exempt production equipment?

Plain-English summary

Gernatt Asphalt Products, Inc. produces sand and gravel for asphalt manufacturers and contractors. It asked two questions: (1) are its purchases of welding rod, acetylene and propane gas, used to repair and maintain production equipment, subject to sales tax; and (2) are transformers that convert incoming utility electricity to a different voltage for its production machinery exempt production equipment?

Welding supplies for maintenance — reduced/zero state rate under § 1105-B:

• Section 1105-B provides a reduced state rate for tools and supplies used to repair, maintain or service machinery and equipment used and consumed in producing tangible personal property for sale.
• The rates phase down (20 NYCRR 527.14): 4% before September 1, 1980; 2% from September 1, 1980 through February 28, 1981; and 0% commencing March 1, 1981 and thereafter.
• Result: Welding supplies bought before March 1, 1981 were subject to the statewide tax at those rates. On and after March 1, 1981, Gernatt may claim exemption from New York State and local sales taxes (except New York City) by giving vendors a completed Exempt Use Certificate (Form ST-121).

Transformers — no production exemption under § 1115(a)(12):

• The production exemption covers machinery and equipment used directly and predominantly in production (20 NYCRR 528.13(c)); "directly" means acting on or changing the material, having an active causal relationship, or handling/storing/conveying or packaging the product. Activities collateral to actual production are not "direct."
• Attached electrical parts share the machine's identity. Electrical parts actually attached to a qualifying piece of production machinery take on that machinery's identity and its exemption. All other electrical components are not used directly in production and are not exempt.
• Transformers don't qualify. Gernatt does not produce electricity for sale, so the transformers cannot themselves be production machinery. They do not qualify for the § 1115(a)(12) exemption and are taxable.

What this means for you

Maintenance supplies and production machinery are taxed under different rules. Consumables you use to repair, maintain or service production equipment ride on § 1105-B (which fell to 0% statewide in 1981, except NYC), while the machinery itself may be fully exempt under § 1115(a)(12). Don't assume one exemption covers both.

Use the right certificate, and mind New York City. To buy qualifying maintenance supplies without state and local tax, give vendors Form ST-121 (Exempt Use Certificate). Note the New York City exception — the § 1105-B relief does not reach the NYC tax.

"Directly and predominantly" is a strict test for equipment. Support equipment that merely conditions inputs — like transformers stepping down utility voltage — is generally collateral, not direct production use. Only electrical parts physically attached to exempt machinery inherit its exemption.

You aren't producing electricity, so your power gear isn't production machinery. Converting or distributing purchased power for the plant is not the same as making a product for sale; that distinction is what disqualified the transformers.

Common questions

Q: Are my welding and cutting-gas supplies for machine upkeep taxable?
A: They fall under § 1105-B. Purchases on or after March 1, 1981 are exempt from state and local tax (except New York City) with a Form ST-121; earlier purchases were taxable at the then-current reduced rates.

Q: What form do I give my supplier?
A: A properly completed Exempt Use Certificate (Form ST-121) supports the exemption for qualifying repair and maintenance supplies.

Q: My transformers feed only production machines and the power is used 100% in production. Why aren't they exempt?
A: Because the production exemption reaches machinery used directly in production, plus electrical parts actually attached to it. Transformers that convert utility voltage are collateral, and since you don't produce electricity for sale they are not production equipment.

Q: Would attached electrical components be exempt?
A: Yes. Electrical parts actually attached to a qualifying piece of production machinery assume its identity and share its exemption. Standalone components like the transformers do not.

Citations and references

Statute:

• Tax Law § 1105-B — reduced rate for tools and supplies used to repair, maintain or service production machinery
• Tax Law § 1115(a)(12) — exemption for machinery and equipment used directly and predominantly in production
• Tax Law § 1105(a) — taxes receipts from every retail sale of tangible personal property

Regulations:

• 20 NYCRR 527.14 — § 1105-B reduced tax rates and effective dates (4% / 2% / 0%)
• 20 NYCRR 528.13(c) — meaning of "directly" and "predominantly" in production; attached electrical parts share the machine's identity

Form:

• Form ST-121 (Exempt Use Certificate) — supports the exemption on qualifying repair and maintenance supplies

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a85_64s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-85 (64) S
Sales Tax
December 5, 1985

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

PETITION NO. S840301A

On March 1, 1984 a Petition for Advisory Opinion was received from Gernatt Asphalt
Products, Inc., Taylor Hollow Road, Box 400, Collins, New York 14034.
The issues raised are whether the purchases of welding rod, acetylene and propane gas for
use in the maintenance of production equipment are subject to sales tax and whether the purchase
of transformers used to convert the incoming electric current from a public utility to a different
voltage suitable for operating Petitiorer's production equipment is considered to be an exempt
purchase of production equipment.
Petitioner produces sand and gravel for sale primarily to asphalt manufacturers and
contractors. Petitioner, states the welding supplies are used in the repair and maintenance of
production equipment and the electricity processed by the transformers is consumed 100 percent
in the operation of plant machinery.
Section 1105 of the Tax Law imposes a tax of four percent upon: “(a) the receipts from
every retail sale of tangible personal property, except as otherwise provided in this article.”
Section 1105-B of the Tax Law provides for a reduction in the four-percent Statewide
sales tax rate imposed on tools and supplies used in connection with the repair, maintenance or
servicing of machinery and equipment for use and consumption in the production of tangible
personal property for sale. Sales and Use Tax Regulations Section 527.14 describes the reduction
as follows:
"(c) Tax rates and effective dates. (1) The reduced State tax rates and effective dates
provided for by section 1105-B of the Tax Law are:
(i)

Zero percent commencing March 1, 1981 and thereafter;

(ii)
Two percent commencing September 1, 1980 and ending February
28, 1981; and
(iii)

Four percent prior to September 1, 1980."

Accordingly, welding supplies used for the maintenance of production equipment and
purchased by Petitioner before March 1, 1981, are subject to Statewide tax as described in the
foregoing regulations. On and after March 1, 1981, Petitioner may claim an exemption from New
York State and local sales taxes (except for New York City) for purchases of such supplies by
providing vendors with a properly completed Exempt Use Certificate (Form ST-121).
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

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

-2­
TSB-A-85 (64) S
Sales Tax
December 5, 1985

Petitioner states that the electricity it purchases runs through a meter owned by the Power
Company to a main disconnect switch. The transformers are placed after this switch and the plant
wiring is connected to the transformers. Petitioner claims that the electricity so transmitted is
consumed entirely in the production process and is therefore exempt from New York State sales
and use taxes. Petitioner contends this exemption should be extended to the transformers.
Section 1115(a)(12) provides an exemption from the tax on retail sales imposed under
subdivision (a) of Section 1105 for “Machinery and equipment for use and consumption directly
and predominantly in the production of tangible personal property . . . for sale, by manufacturing,
processing. . . .”
Sales and Use Tax Regulations Section 528.13(c) states, in part:
"(1) 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

(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.
(2)
Usage in activities collateral to the actual production process is not deemed
to be used directly in production."
All electrical parts actually attached to a qualifying piece of production machinery or
equipment are deemed to assume the identity of such machinery and equipment and are therefore
entitled to the same exemption as the machinery and equipment. All other electrical components
are not used directly in production and therefore are not entitled to the exemption contained in
Section 1115(a)(12) of the Tax Law. Moreover, Petitioner does not produce electricity for sale
whereby the transformers could be deemed to be production machinery or equipment.
Accordingly, Petitioner's transformer does not qualify for the production exemption under section
1115(a)(12) of the Tax Law.

DATED: December 5, 1985

s/ANDREW F. MARCHESE
Chief of Advisory Opinions

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