New Jersey Recycling Equipment Exemption Applies to Equipment that Could Have Non-exempt Uses

Wednesday, July 10th, 2013

New Jersey

The New Jersey Tax Court recently determined that recycling machinery was exempt even if it could be put to non-exempt use.

The taxpayer had a tree removal, tree trimming, land clearing, and tree recycling business. The taxpayer bought an excavator, which it used to feed trees and tree products into a tub grinder to create mulch at its recycling facility. The tub grinder was exempt recycling equipment. Although the excavator was mobile, the taxpayer did not move it from its place in the recycling facility. The taxpayer also bought a skid loader to move the mulch from the tub grinder to piles for storage or transfer to customers.

New Jersey exempts sales of equipment used "exclusively to sort and prepare solid waste for recycling or in the recycling of solid waste." The exemption does not apply to conventional motor vehicles or to equipment used after the first marketable product is produced. The Division of Taxation had previously interpreted the exemption to apply only to equipment that could only be used for recycling.

The Tax Court determined that the excavator and the skid loader qualified for exemption. Relying on the plain meaning of the statute, the court held that the recycling exemption applied to equipment even if it could be used for other things. As long as the equipment was not actually used for anything other than recycling, it qualified for exemption. Because the excavator and skid loader were exclusively used in recycling, it did not matter that they could potentially be used for other things. Both the excavator and the skid loader were integral parts of the recycling process that produced mulch and were therefore exempt.

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