Is production machinery like a coffee roaster exempt from New York sales tax, and how is the separate installation charge taxed?

Plain-English summary

Duane and Siganoc, Inc. sells coffee roasters — a reconditioned one sold uninstalled, and roasting equipment sold installed. In both cases the equipment is used to roast coffee that is then packaged and sold. The company asked whether New York sales tax applies.

The Department held the machinery is exempt production equipment, while the installation charge is taxed on a date-based schedule.

• The equipment qualifies for the production exemption. Section 1115(a)(12) exempts machinery or equipment used or consumed directly and predominantly in the production of tangible personal property for sale by manufacturing or processing. Roasting coffee for packaged sale is such production, so the roasters are exempt from State and local sales tax — except New York City's § 1107 tax — provided the buyer furnishes a properly completed Exempt Use Certificate (Form ST-121).
• Installation is taxed under § 1105-B, by date. Section 1105-B set a reduced/eliminated State rate on installing, repairing, maintaining or servicing production machinery:
  • Before September 1, 1980 — full 4% State rate plus applicable local tax.
  • September 1, 1980 through February 28, 1981 — reduced 2% State rate, plus full local tax.
  • On or after March 1, 1981 — exempt from State tax, but still subject to full local tax.
• Uninstalled roaster. Exempt from State and local sales tax (except NYC) with a properly completed Form ST-121.
• Installed roaster. The equipment charge is exempt from State and local tax (except NYC); the installation charge is taxed per the § 1105-B schedule above.
• Billing mechanics. The seller must list the equipment and installation charges separately, collect the appropriate State/local tax on installation, and collect the New York City tax on the equipment price where applicable.

What this means for you

Machinery that directly makes goods for sale is generally exempt — but get the ST-121. If your equipment is used directly and predominantly to produce tangible personal property for sale (here, roasting coffee for packaged sale), it qualifies for the § 1115(a)(12) exemption. The buyer must give the seller a properly completed Exempt Use Certificate (Form ST-121).

Separate the equipment from the installation on your invoice. The exemption covers the machine, but the installation service is taxed under its own rules. Listing them separately lets you apply the correct treatment to each — and is what the Department directs here.

New York City and the installation timeline are the traps. The production exemption does not reach New York City's § 1107 tax, so equipment used in the City still bears City tax. And installation was taxed at 4% State, then 2% State, then State-exempt across 1980–81 — with local tax applying throughout — so the date of installation drives the installation-charge rate.

Common questions

Q: Is the coffee roaster itself taxable?
A: No — it's exempt production machinery under § 1115(a)(12) (used directly and predominantly to produce coffee for sale), exempt from State and local tax except New York City's tax, if the buyer provides a Form ST-121.

Q: How is the installation charge taxed?
A: Under § 1105-B by date: 4% State (plus local) before 9/1/1980; 2% State (plus full local) from 9/1/1980 through 2/28/1981; and State-exempt but full local on or after 3/1/1981.

Q: Does the exemption cover New York City tax?
A: No. The § 1115(a)(12) exemption does not reach New York City's sales/use tax under § 1107, so the seller must collect City tax on the equipment price where applicable.

Citations and references

Statutes, regulations and authority:

• Tax Law § 1115(a)(12) — exempts machinery/equipment used directly and predominantly in producing tangible personal property for sale by manufacturing or processing
• Tax Law § 1105-B — reduced the State rate on installing/repairing/maintaining/servicing production machinery to 2% (9/1/1980–2/28/1981) and eliminated the State rate as of 3/1/1981, with local tax continuing to apply
• Tax Law § 1107 — New York City sales and use taxes (not reached by the § 1115(a)(12) exemption)
• Exempt Use Certificate (Form ST-121) — required for the exempt equipment sale

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/h81_113s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-81(113)S
Sales Tax
June 5,1981

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

PETITION NO. S810210B

On February 10, 1981 a Petition for Advisory Opinion was received from
Duane and Siganoc, Inc., 5 Coursen Way, Morris Plains, New Jersey 07950.
The issue raised is whether New York State Sales Tax should be collected
on the sale of a reconditioned coffee roaster which is sold without installation,
and on the sale of coffee roasting equipment which is sold installed. In both
transactions the equipment will be used to roast coffee which will then be
packaged and sold.
Section 1115(a)(12) of the Tax Law provides an exemption from sales tax
with respect to "machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property ... for sale, by
manufacturing, processing...." A similar exemption applies with respect to local
sales taxes (except for New York City's tax, which is imposed under section 1107
of the Tax Law).
Under the provisions of Section 1105-B of the Tax Law, for the period
September 1, 1980 through February 28, 1981, the Statewide sales tax rate was
reduced to 2% with respect to the services of installing, repairing, maintaining
or servicing of machinery or equipment for use or consumption directly and
predominantly in the production of tangible personal property for sale. The
Statewide sales tax on these services was eliminated as of March 1, 1981.
However, these services will continue to be subject to all local sales taxes.
Accordingly, Petitioner's sales of coffee roasters which are sold
uninstalled will be exempt from New York State and local sales taxes, except for
New York City's tax, provided the purchaser furnishes Petitioner with a properly
completed Form ST-12l, Exempt Use Certificate. When Petitioner sells a coffee
roaster installed, the charge for the roaster will be exempt from New York State
and local sales taxes, except for New York City's tax. However, the installation
charge will be subject to the Statewide sales tax of 4%, as well as any
applicable local sales tax, if the installation occurred prior to September 1,
1980. If the installation occurred during the period September 1, 1980 through
February 28, 1981 the installation charge will be subject to the reduced
Statewide sales tax rate of 2%, but will be subject to the full local sales tax
rate. If the installation occurred on or after March 1, 1981 the installation
charge will be exempt from the Statewide sales tax but subject to the full local
sales tax rate. In order to enjoy the benefit of the reduced rate and the
exemption described here, the purchaser must furnish Petitioner with a properly
completed Form ST-121, Exempt Use Certificate. When billing a customer Petitioner
should list separately the prices charged for equipment and for installation
service. Petitioner must collect the appropriate State and local sales tax on the
charge for installation service and, if applicable, the New York City sales tax
on the price of the equipment.

DATED: May 21,1981

TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR