Sales Tax Exemptions
There are several sales tax exemptions available in Kansas by state statute which are identified in this booklet, along with the application for the exemption: http://www.ksrevenue.org/pdf/pub1520.pdf. Some of our key sales tax exemptions are listed below:
- Electricity, gas and water consumed during manufacturing are exempt from the Kansas sales tax [K.S.A. 79-3606(n)].
- Sales of manufacturing machinery and equipment are exempt from sales taxes [K.S.A. 79-3606(kk)]. This exemption extends to machinery and equipment purchased primarily for use in the assembly, processing, finishing, storing, warehousing or distribution of tangible personal property intended for resale. Specifically, K.S.A. 79-3606 (fff) provides that the following shall be exempt from tax:
- Sales of material handling equipment, racking systems and other related machinery and equipment that is used for the handling, movement or storage of tangible personal property in a warehouse or distribution facility in this state;
- Sales of installation, repair and maintenance services performed on such machinery and equipment;
- Sales of repair and replacement parts for such machinery and equipment
- Labor and services used in original construction. [K.S.A. 79-3603(p)]
- Tangible personal property purchased by a railroad or public utility for direct and immediate consumption or movement in interstate commerce. [K.S.A. 79-3606(f)]
- Tangible personal property that becomes an ingredient or component part of tangible personal property or services produced, manufactured or compounded for ultimate sale at retail either inside or outside of Kansas. [K.S.A. 79-3606(m)]
- Tangible personal property that is immediately consumed or dissipated in the actual production, manufacturing, processing, mining, drilling, refining or compounding of tangible personal property for ultimate sale at retail either inside or outside Kansas. [K.S.A. 79-3606(n)]
- Purchases of animals, fowl and fish primarily used in agriculture; the production of food for human consumption; the production of animal, dairy, poultry or fish products, fiber or fur; or the production of offspring for use in any such endeavor. [K.S.A. 79-3606(o)]
- Tangible personal property purchased by a city from the proceeds of industrial revenue bonds issued prior to July 1, 1973; the cost of the building and all items of fixed equipment are entitled to exemption from Kansas sales tax at the time of initial purchase. [K.S.A. 79-3603(h)]
- Incoming and outgoing interstate-wide area telephone or transmission services (WATTS). The gross receipts from sales of interstate telephone or telegraph services utilizing a WATTS line are specifically exempted from state sales taxes. [K.S.A. 79-3603(b)]
A sales tax exemption certificate must be obtained from the Kansas Department of Revenue prior to any purchases. The exceptions to this involve the labor on residential construction, original construction and replacement or repair of bridges and highways, which does not require a certificate [K.S.A. 79-3603(p)]. The Kansas Department of Commerce can assist businesses in obtaining exemption certificates.
Kansas applies the “Integrated Plant” standard to the taxation of machinery and equipment used in production [K.S.A. 79-3606(kk)]. Adoption of the integrated plant standard makes it easier for the taxpayer to interpret the boundaries of the exemption. Traditionally, manufacturing machinery and equipment used in production qualified for the tax exemption only if they had a “direct and immediate effect” on the physical transformation of raw material into new material.
The integrated plant theory is broader and allows for additional machinery and equipment to qualify for the tax exemption. Machinery such as pollution control equipment will qualify for the tax exemption under the integrated plant theory.
The integrated plant theory is specifically intended to include the following:
- Pre-production machinery and equipment (e.g., raw material storage equipment, raw material handling equipment).
- Machinery that services the production line (e.g., machinery that purifies water, cleans oil, screens chemicals).
- Machinery that deals with byproducts of production (e.g., pollution control equipment, waste handling equipment).
- Ancillary property that might otherwise not be viewed as machinery or equipment (e.g., gas pipes, electric wiring, special foundations, clean rooms).
- Labor services for installation and repair of qualified machinery or equipment.