Is machinery sold to the solid-waste industry exempt from sales tax — recycling equipment that turns scrap into materials for sale versus equipment that just compacts trash for a landfill?

Plain-English summary

Lindemann Recycling Equipment Inc. sells machinery to the solid-waste industry. It sells two types: machines that recycle metal, wood, paper, and cardboard, and machines that compact waste for landfill storage (not for recycling). It asked whether either is exempt from sales tax under the production-machinery exemption, Tax Law § 1115(a)(12).

The Department split the answer.

• Recycling machinery → exempt. Someone who processes scrap for sale is engaged in "processing" under § 1115(a)(12). Machines like hydraulic guillotines, alligator shears, baling presses, turnings crushers, and devices that break scrap to change it from unusable to usable remelt material act directly in production. So if the machine is used directly and predominantly (over 50%, per 20 NYCRR § 528.13(c)) to process material that will be sold, it qualifies for the exemption. (Only the production phase counts — machinery used mainly in administration or distribution doesn't qualify, § 528.13(b).)
• Landfill-compacting machinery → taxable. Machinery used to compact solid waste before landfill disposal is not exempt: the compacted waste isn't sold, so it fails the production test. And it doesn't fit the separate industrial-waste-disposal exemption in § 528.13(d), because (1) it isn't part of a process for preventing water or air pollution, (2) the waste doesn't result from a production process (waste a handler collects from customers doesn't count), and (3) a solid-waste handler is not a "manufacturer."
• How to sell the exempt machines tax-free. Lindemann must get a properly completed Exempt Use Certificate (Form ST-121) from the customer within 90 days of delivery; a governmental purchase order works for government buyers.

What this means for you

"Recycling" can qualify as exempt production — if there's a product for sale. Turning scrap into a material that gets sold (for remelting or reuse) is processing under § 1115(a)(12), so the machines that do it can be bought exempt. The key is that the process yields property for sale.

Just getting rid of waste is not production. Equipment that compacts, bales, or otherwise prepares waste for disposal — with no product sold at the end — is taxable. And the narrow industrial-waste-disposal exemption (§ 528.13(d)) is only for manufacturers treating/storing waste from their own production process as pollution control — not for waste handlers dealing with collected trash.

Get the ST-121 within 90 days. A dealer selling exempt production machinery needs a properly completed Exempt Use Certificate (Form ST-121) from the buyer within 90 days of delivery (or a government purchase order from a government buyer) to support the exempt sale.

Common questions

Q: We sell scrap-recycling machinery. Is it exempt?
A: Yes, if the customer uses it directly and predominantly (over 50%) to process scrap into materials that will be sold — that's exempt processing under § 1115(a)(12).

Q: What about machines that just compact trash for the landfill?
A: Taxable. The waste isn't sold, and it doesn't meet the industrial-waste-disposal exemption (§ 528.13(d)), which is limited to manufacturers treating pollution-causing waste from their own production.

Q: What paperwork do we need to sell the exempt machines tax-free?
A: A properly completed Exempt Use Certificate (Form ST-121) from the customer within 90 days of delivery — or a governmental purchase order for a government buyer.

Citations and references

Statute and regulation:

• Tax Law § 1105(a) — imposes sales tax on receipts from sales of tangible personal property
• Tax Law § 1115(a)(12) — exempts machinery/equipment used directly and predominantly in producing tangible personal property for sale by manufacturing or processing
• 20 NYCRR § 528.13(b) — production (the production line from raw-material handling through finishing/packaging for sale) versus non-qualifying administration and distribution
• 20 NYCRR § 528.13(c) — "directly" and "predominantly" (over 50% of use in the production phase)
• 20 NYCRR § 528.13(d) — exemption for machinery used to dispose of industrial waste as part of a pollution-prevention process, limited to manufacturers treating waste (over 50%) from a production process
• Form referenced: ST-121 (Exempt Use Certificate), required within 90 days of delivery

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a89_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (3)S
Sales Tax
January 31, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S880928A

On September 28, 1988, a Petition for Advisory Opinion was received from Lindemann
Recycling Equipment Inc., 500 Fifth Avenue, New York, New York 10010.
The issue raised is whether the sale of machinery used in the processing of scrap material is
exempt from sales tax.
Petitioner sells machinery and equipment to companies in the solid waste processing
industry. Petitioner sells two types of machinery. The first type is used to recycle metal, wood, paper
and cardboard. The second type of machinery is used to compact waste for landfill storage and is not
used for recycling.
Section 1105(a) of the Tax Law imposes a sales tax upon "[t]he receipts from every sale of
tangible personal property, except as otherwise provided in this article."
Section 1115(a)(12) of the Tax Law exempts "[m]achinery or equipment for use or
consumption directly and predominantly in the production of tangible personal property, . . . for sale
. . . by manufacturing, processing. . . ." (Emphasis supplied).
Regulation section 528.13(c) provides 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

(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.

Machinery or equipment is used predominantly in production, if over 50 percent of its use
is directly in the production phase of a process.
Additionally, regulation section 528.13(b) provides that the section 1115(a)(12) exemption

-2­
TSB-A-89 (3)S
Sales Tax
January 31, 1989

applies only to machinery and equipment used directly and predominantly in the production phase.
Machinery and equipment predominantly used in administration or distribution does not qualify for
exemption. Regulation section 528.13(b) provides:
(i)

Administration includes activities such as sales promotion, general office work,
credit and collection, purchasing, maintenance, transporting, receiving and testing of
raw materials and clerical work in production such as preparation of work,
production and time records.

(ii)

Production includes 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.

(iii)

Distribution includes all operations subsequent to production, such as storing,
displaying, selling, loading and shipping finished products.

A person engaged in the processing of scrap material for sale is engaged in "processing"
within the meaning of section 1115(a)(12) of the Tax Law. Hydraulic guillotines, alligator sheers,
baling presses, turnings crushers and special devices for breaking scrap to change its condition from
unusable to usable materials for remelting purposes qualify as being used directly in production.
Accordingly, if machinery and equipment is used directly and predominantly (more than
50%) to process wood, paper, cardboard and metal which will be sold, such machinery and
equipment qualifies for exemption under section 1115(a)(12) of the Tax Law.
In order to sell equipment tax exempt, Petitioner must obtain a properly completed Exempt
Use Certificate (Form ST-121) from its customers not later than ninety days after delivery of such
equipment. If any of Petitioner's customers are governmental entities, Petitioner may accept such
entities' governmental purchase order in lieu of an Exempt Use Certificate.
Petitioner has also inquired regarding the taxability of machinery used to compact waste prior
to its disposal in a landfill. Such compacted waste is not intended to be sold.
Section 528.13(d) of the sales and use tax regulations provides for an exemption with respect
to:
Machinery or equipment used for disposing of
industrial waste, as a part of a process for preventing
water or air pollution ... if
(i) the machinery or equipment is purchased by a

-3­
TSB-A-89 (3)S
Sales Tax
January 31, 1989

manufacturer and used predominantly to actually treat,
bury or store waste material from a production
process, and
(ii) over 50 percent of the waste treated, buried or stored results from the
production process.
Machinery used to compact solid waste prior to its disposal in a landfill does not qualify for
exemption under section 528.13(d) of the sales and use tax regulations because such machinery is
not used as a part of a process for preventing water or air pollution. Moreover, over fifty percent of
the waste must result from a production process. Solid waste materials collected from its customers
by a solid waste handler do not qualify as waste which results from a production process.
Additionally, the exemption applies to machinery purchased by a manufacturer. Solid waste handlers
do not qualify as manufacturers for purposes of the exemption under regulation section 528.13(d).
Accordingly, machinery or equipment used by a solid waste handler to compact solid waste
prior to its disposal in a landfill does not qualify for exemption from sales and use tax.

DATED: January 31, 1989

FRANK J. PUCCIA
Director
Technical Services

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