Qualified manufacturers are authorized to make purchases at a reduced state sales tax rate of 1.5% on all forms of energy fuel used in any manner on the manufacturing site. Any energy fuel that is metered separately and comes into direct contact with the product during the manufacturing process is exempt from sales or use tax.
Manufacturers are also entitled to a reduced state tax rate of 1%, and a local tax rate of 0.05% to 0.33% when the rate of local tax does not exceed 1% on water used on the manufacturing site. Water that actually comes in direct contact with the product during the manufacturing process and that is separately metered is exempt from sales or use tax.
Reference: Tenn. Code Ann. §§ 67-6-206 and 67-6-702(b).