SALT Report 2194 – The Tennessee Department of Revenue issued a letter ruling regarding the taxability of freezer racks installed in a food production facility. The Taxpayer manufactures food products that are kept frozen according to each customer’s specifications. During the production phase the products are chilled, but not frozen, and packaged before they enter the freezer. Once frozen, the products remain in the freezer until they are shipped to the Taxpayer’s customers. The Taxpayer requested guidance as to whether the freezer racks qualified for the industrial machinery exemption.
In its decision, the Department referred to Tennessee Code ann. §67-6-206(a) which exempts “industrial machinery” from sales and use tax, provided the Taxpayer qualifies as a manufacturer. A manufacturer, for purposes of the exemption, is defined as “one who engages in . . . fabrication or processing as one’s principal business.” Based on that description the Department determined that the Taxpayer qualified as a manufacturer because more than 50% of the Taxpayer’s revenue is derived from fabricating or processing tangible personal property for resale.
Additionally, the Department determined that freezing the food products prior to sale constitutes processing and maintaining the products in a frozen state until they are removed from the racks is considered part of the manufacturing process. Accordingly, the Taxpayer’s freezer racks qualified for the industrial machinery exemption because:
- The freezer racks are necessary machinery, apparatus, or equipment used in the manufacturing process,
- The freezer racks are necessary to fabricate or process the products sold by the Taxpayer, and
- The freezer racks are used primarily to process the products sold by the Taxpayer
For Further Information