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SMART TAX USA - Tennessee State Manufacturing Exemptions

Tennessee: Industrial Machinery Exemption

The state of Tennessee provides an exemption for industrial machinery used to fabricate or produce items for resale. The exemption can be found under TN Rule 1320-5-1-.106, Industrial Machinery.

Entities that wish to purchase or lease production equipment exempt from sales and use tax need to apply to the state of Tennessee for permission to do so. The state of Tennessee will require information about the nature of the business and an explanation of why the taxpayer feels the purchase of the industrial machinery qualifies for the exemption. If granted, the exemption certificate will be in place permanently unless the taxpayer’s business either:

a. Ceases operations.

b. The business changes in character to such a point that it no longer operates within the scope or description provided in its original application.

While the Rule states that the application must be made prior to the purchase of any qualifying equipment or machinery, there are exceptions to this requirement. The examples given in Rule 1320-5-1-.106 for retroactive application include but are not limited to the following:

1. A major restructuring of the business

2. A change in ownership of the business

3. Death of a key person in the tax area of the organization

4. The taxpayer being misled by state officials who had indicated that authority to purchase the industrial machinery was not required

5. Failure to renew the certificate if prior approval had been granted

6. Any other grounds that the Commissioner finds satisfactory to allow retroactive application of this exemption.

The last example given in the Rule provides an open-ended clause that allows taxpayers an opportunity to retroactively apply for the exemption. In our experience, a well documented request that provides a clear explanation for both why the business qualifies for the exemption as well as the reason for not applying prior to the purchase of said equipment is usually sufficient.

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