Can a lawn care company buy the mixer drums, pumps, pulleys, chains and engine parts it uses to blend its own fertilizer tax-free as production machinery and equipment?

Plain-English summary

Funk Lawn Spray, Inc. provides lawn care services and fertilizes lawns as part of that work. It manufactures roughly 40 different proprietary fertilizer blends (plus several herbicides and insect controls) by mixing raw materials in specially designed mixer drums mounted on its delivery trucks, using pumps, pulleys, chains and vehicle engine parts to run those drums. On its invoices, Funk separately lists a "Fertilizer" charge and a "Service Treatment" charge, with fertilizer averaging about 30% of the total. Funk asked whether the mixing equipment -- and repairs to it -- could be purchased sales-tax-free as "production machinery and equipment" under the manufacturing exemption.

The Department said no. That exemption only covers machinery used predominantly to produce tangible personal property "for sale." Here, lawn fertilization is itself a taxable service (maintaining, servicing or repairing real property, under Tax Law § 1105(c)(5)), and when a customer's lawn is treated, the entire charge -- including the value of the fertilizer -- is legally a charge for that taxable service, not a sale of the fertilizer itself. Because Funk isn't actually selling tangible personal property to its customers, the drums and related equipment aren't producing anything "for sale," so they fall outside the exemption. Sales and use tax is due on the equipment's purchase price, and since the equipment doesn't qualify as production machinery, tax is also due on any repairs to it.

What this means for you

Lawn care, landscaping and pest control businesses

If you manufacture your own fertilizer, pesticide or similar product in-house solely to apply it as part of a taxable lawn or grounds-maintenance service -- rather than selling the finished product on its own -- the equipment you use to make it does not qualify for the manufacturing/production exemption, even if you separately itemize a "materials" or "fertilizer" line on your invoice. Breaking out that line item doesn't turn the transaction into a sale of goods; the whole charge is still taxed as a service.

Accountants and tax professionals

The key move in this opinion is that the resale/production exclusion under § 1101(b)(4)(i)(A) doesn't apply because the property (fertilizer) isn't sold "as such" -- it's transferred to the customer in conjunction with a taxable service under § 1101(b)(4)(i)(B), so it's excluded from the production-for-sale exemption. This tracks the older Godfroy's Service Station precedent (TSB-A-82(28)S) that the whole charge for a taxable service, including any material transferred with it, is taxed as a service charge, not a sale of the material.

Common questions

Q: Does separately stating "fertilizer" and "service treatment" on the invoice change the tax treatment?
A: No. Even with a separate materials line, the entire charge is for the taxable lawn-maintenance service because that's what the customer is actually purchasing.

Q: What about repairs to the mixing equipment?
A: Also taxable. Repair exemptions only apply to equipment that itself qualifies as exempt production machinery, and this equipment doesn't.

Q: Would the answer differ if the company sold the fertilizer itself to customers, without applying it?
A: Possibly -- the opinion turns on the fertilizer being applied as part of a taxable service rather than sold as a standalone product. A company that manufactures and sells fertilizer as tangible personal property (not as part of a service) presents different facts not addressed here.

Q: Can another lawn care company rely on this ruling?
A: No. It binds the Department only for Funk Lawn Spray and the facts as presented. Other businesses should request their own advisory opinion or consult a tax professional.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(4) (definition of retail sale, resale and service exclusions)
• Tax Law § 1105(c)(5) (tax on maintaining, servicing or repairing real property, including lawn services)
• Tax Law § 1105-B(b) (exemption for repair/maintenance of certain tangible personal property)
• Tax Law § 1115(a)(12) (production machinery and equipment exemption)
• 20 NYCRR § 527.7 (maintaining, servicing or repairing real property; Example 7, lawn maintenance)

Prior rulings referenced:

• Godfroy's Service Station, Inc., Adv Op Comm T&F, August 19, 1982, TSB-A-82(28)S (whole charge for taxable service, including transferred materials, taxed as a service)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a97_26s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(26)S
Sales Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S961206A

On December 6, 1996, a Petition for Advisory Opinion was received
from Funk Lawn Spray, Inc., 330 Fillmore Avenue, Tonawanda, NY 14150.
The issues raised by Petitioner, Funk Lawn Spray, Inc., are:
1) Whether the purchase of mixer drums and assorted pumps, pulleys, chains
and vehicle engine parts which are used to operate the mixer drums are exempt
from sales and compensating use tax as production machinery and equipment.
2) Whether repairs to such items constitute exempt repairs to production
machinery and equipment.
Petitioner presents the following facts.
Petitioner is in the business of providing lawn care services and
fertilizer in conjunction with these services. Petitioner's sales are subject
to sales tax.
Petitioner provides fertilizer generally to customers of
Petitioner receiving lawn care services. Petitioner's typical invoice breaks
down the charges as follows:
Charges:
Fertilizer
Service Treatment
Subtotal
Sales Tax
Total

$
$
$
$
$

The fertilizers provided by Petitioner are manufactured from raw
materials.
Petitioner purchases the materials in bulk and mixes them in
specifically designed mixer drums attached to the delivery trucks. The mixer
drums use internal blades to process the materials to a uniform consistency.
Petitioner's "fertilizers" consist of approximately 40 different
proprietary mixes which are used throughout the growing season. Each of the
fertilizers is required to be identified and labeled on Petitioner's Department
of Transportation shipping papers. The fertilizers provide a complete blend of
Macro and Micro nutrients such as: nitrogen, phosphorous, potassium and Macro
nutrients. This may be in the slow (time) release form or quick release form.
Iron, sulfur and some 30 other items are used as Micro nutrients. Along with
these mixes of fertilizers Petitioner produces selective "post"-emergent
herbicide of some six varieties, and one selective "pre"-emergent herbicide.
Insect controls with Pyrethroids and Oregano Phosphate mixtures, are also
included.

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TSB-A-97(26)S
Sales Tax

Petitioner's fertilizers are proprietary. Each fertilizer has a specific
composition which is listed with the Department of Environmental Conservation.
Proper processing and mixing of the materials is essential to attain the
biochemical reactions desired for proper use of the fertilizer. The materials
are mixed at Petitioner's site of operation and again at the customer's site
where the fertilizer is ultimately distributed.
The cost of fertilizer
represents an average of approximately 30% of Petitioner's charges but may vary
depending on the type of fertilizer used.
Applicable Law and Regulations
Section 1101(b)(4) of the Tax Law states, in pertinent part:
Retail Sale. (i) A sale of tangible personal property to any person
for any purpose, other than (A) for resale as such or as a physical
component part of tangible personal property, or (B) for use by the
purchaser in performing the services subject to tax under
paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of
section eleven hundred five where the property so sold becomes a
physical component part of the property upon which the services are
performed or where the property so sold is later actually
transferred to the purchaser of the service in conjunction with the
performance of the service subject to tax.
Section 1105 of the Tax Law states, in part:
Imposition of sales tax. -- . . . there is hereby imposed and there
shall be paid a tax . . . upon:

*

*

*

(c)
The receipts from every sale, except for resale, of the
following services:
*

*

*

(5) Maintaining, servicing or repairing real property, property
or land, . . .
Section 1105-B(b) of the Tax Law states, in part:
Notwithstanding any other provisions of this article, . . . the
taxes imposed by subdivision (c) of section eleven hundred five on
receipts from every sale of the services of installing, repairing,
maintaining or servicing the tangible personal property described
in paragraph twelve of subdivision (a) of section eleven hundred
fifteen, including the parts with a useful life of one year or
less, tools and supplies described in subdivision (a) of this

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TSB-A-97(26)S
Sales Tax

section, to the extent subject to such tax, . . . shall be exempt
from the tax on sales imposed under subdivision (c) of section
eleven hundred five on and after March first, nineteen hundred
eighty-one.
Section 1115(a)(12) of the Tax Law provides an exemption from the sales
tax with respect to the purchase of "machinery or equipment for use or
consumption directly and predominantly in the production of tangible personal
property, . . . for sale, by manufacturing, processing, . . . ."
Section 527.7 of the Sales and Use Tax Regulations states, in part:
Maintaining, servicing or repairing real property.
(a)
Definitions. (1) Maintaining, servicing and repairing are terms
which are used to cover all activities that relate to keeping real
property in a condition of fitness, . . .
Among the services
included are . . . services to the grounds, such as lawn services,
. . . .
(b) Imposition. (1) The tax is imposed on receipts from every
sale of the services of maintaining, servicing or repairing real
property, whether inside or outside of a building.
*

*

*

(3) When the service of maintaining, servicing or repairing real
property is performed in conjunction with the transfer of title to
tangible personal property, the price of the tangible personal
property is also subject to tax.
Example 7:

A landscaping company enters into a
contract to mow a customer's lawn on a
regular basis; re-seed in the spring and
fall and fertilize as needed. The total
charge to the customer for labor and
materials is taxable as maintenance, and
the tax paid by the company on materials
used in performing the service which
become part of the property serviced may
be claimed as a credit or refund.

Opinion
Assuming arguendo that the operations performed by the mixer drums and
assorted pumps, pulleys, chains and vehicle engine parts in question constitute
the "production of tangible personal property," within the meaning and intent of
Section 1115(a)(12) of the Tax Law, the exemption under Section 1115(a)(12) is
nonetheless inapplicable in the present instance because the predominant use of
the machine is not production of tangible personal property "for sale". This
conclusion derives from the following considerations.

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TSB-A-97(26)S
Sales Tax

The service of lawn fertilization is one of the taxable services referred
to above and is included within the category of "maintaining, servicing or
repairing real property, property or land" in Section 1105(c)(5) of the Tax Law.
When Petitioner purchases materials which are mixed to specifications to create
the fertilizer, the sale of such materials to Petitioner is not subject to tax
as a retail sale. The sale of materials to Petitioner is not a sale for resale,
excluded under section 1101(b)(4)(i)(A), but is a sale of tangible personal
property to be transferred in conjunction with a taxable service (i.e., lawn
fertilization), excluded under section 1101(b)(4)(i)(B). The statute treats (1)
sales of property and (2) transfers of property in conjunction with the
performance of a taxable service as distinct categories.
For purposes of the Tax Law, where a lawn is "serviced, maintained or
repaired" by having Petitioner fertilize or treat the lawn, the entire charge,
including that portion representing the value of the fertilizer, is a charge for
the rendition of the service and not for the sale of tangible personal property.
It follows that Petitioner under these circumstances is not selling tangible
personal property to its customers, but rather is performing a taxable service.
See Godfroy's Service Station, Inc., Adv Op Comm T & F, August 19, 1982,
TSB-A-82(28)S. Accordingly, the mixer drums and assorted pumps, pulleys, chains
and vehicle engine parts in question are not used predominantly in the production
of tangible personal property "for sale," within the meaning and intent of
section 1115(a)(12) of the Tax Law. Therefore, sales and compensating use taxes
are due on the purchase by Petitioner of the mixer drums and assorted pumps,
pulleys, chains and vehicle engine parts. Moreover, since such items do not
constitute production machinery or equipment, any repairs to such items are also
subject to sales tax.

DATED:

April 24, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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