N.Y. Comp. Codes R. & Regs. tit. 20 § 528.22

Current through Register Vol. 46, No. 50, December 11, 2024

Section 528.22 - Fuel, gas, electricity, refrigeration and steam and like services used in production

Tax Law, § 1115(c)

(a)Exemption.

(1) Fuel, gas, electricity, refrigeration and steam and gas, electric, refrigeration and steam service of whatever nature is exempt from the sales and compensating use tax when used directly and exclusively in the production, for sale, of tangible personal property, gas, electricity, refrigeration or steam by one of the following endeavors:

(i) manufacturing;

(ii) processing;

(iii) assembling;

(iv) generating;

(v) refining;

(vi) mining; or

(vii) extracting.

Cross-reference:

See section 528.7(a)(4) of this Part regarding fuel, gas, electricity, refrigeration, and steam, and like services used in farm production or in a commercial horse boarding operation, or in both.

(2) Fuel, gas, electricity, refrigeration and steam and like services used or consumed in the heating, cooling or lighting of buildings or in the preparation of food and drink subject to tax imposed by section 1105(d) of the Tax Law or in the storage of tangible personal property, are subject to the sales tax.

(3) There is no exemption from the tax imposed in New York City under section 1107 of the Tax Law, for fuel, gas, electricity, refrigeration and steam, and like services used or consumed in production.

(4) An exempt use certificate (Form ST-121) is used to make purchases eligible for this exemption, without payment of sales tax. (See section 532.4[e] of this Title.)

(b)Definitions.

(1) The term fuel as used in this section means any commodity which produces heat or energy. Fuel includes wood, coal, radioactive materials and petroleum products except lubricants.

(2) The term gas as used in this section means any gaseous substance inert or otherwise, whether taxed under subdivision (a) or (b) of section 1105 of the Tax Law, used in the performance of a production function or to create an atmosphere which is conducive to or necessary for production.

(c)Directly and exclusively.

(1)Directly means the fuel, gas, electricity, refrigeration and steam and like services, and must during the production phase of a process, either:

(i) operate exempt production machinery or equipment; or

(ii) create conditions necessary for production; or

(iii) perform an actual part of the production process.

(2) Usage in activities collateral to the actual production process is not deemed to be use directly in production.

Example 1:

A welding shop produces stainless steel railings. In order to carry out the production, the railings must be welded in an inert atmosphere. The welding shop purchases an inert gas which is used to create the inert atmosphere. The gas is used directly in production.

(3)

(i)Exclusively means that the fuel, gas, electricity, refrigeration and steam and like services are used in total (100%) in the production process.

(ii) Because fuel, gas, electricity, refrigeration and steam when purchased by the user are normally received in bulk or in a continuous flow and a portion thereof is used for purposes which would make the exemption inapplicable to such purchases, the user may claim a refund or credit for the tax paid only on that portion used or consumed directly and exclusively in production.

(iii) In the alternative, an exempt use certificate (Form ST-121) may be used, providing full liability is assumed for any State and local tax due on any part of purchases used for other than the exempt purposes described in subdivision (a) of this section. The taxable portion of these purchases is to be reported as a "purchase subject to use tax" on a sales and use tax return required to be filed with the Department of Taxation and Finance.

(iv) The user must maintain adequate records with respect to the allocation of fuel, gas, electricity, refrigeration and steam used directly and exclusively in production and for nonexempt purposes.

(v) For the purpose of substantiating the allocation of fuel, gas, electricity, refrigeration and steam and like services used directly and exclusively in production from that used for nonexempt purposes, the user must, when claiming a refund or credit, submit an engineering survey or the formulae used in arriving at the amounts used in an exempt manner.

Example 2:

A producer of electricity purchases fuel oil in bulk. The oil is used both to create steam to operate turbines which produce electricity and to heat buildings. The oil used for steam to operate the turbines is used directly in production while the oil used to heat buildings is not used in production.

Example 3:

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.

Example 4:

A food processor packages and ships t.v. dinners to a flash freezing plant to process the dinners. The flash freezing of the dinners is refrigeration used in production. The frozen dinners are then moved to a refrigerated warehouse for storage to await sale and delivery. The refrigerated storage is not refrigeration used in production.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 528.22