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EXEMPTIONS


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Inventory Tax Exemption

All merchants’ and manufacturers’ inventories have been exempt from property taxes by constitutional amendment since 1989 (K.S.A. 79-201m). This exemption does not apply to public utility inventories.

Machinery and Equipment Property Tax Exemption

A state and local property tax exemption is available for new or used commercial and industrial machinery, and equipment acquired by qualified purchase or lease, or transferred into the state for the purpose of expanding an existing facility or establishing a new facility. This exemption covers:

  • Equipment used in manufacturing operations
  • Equipment used in warehousing/distribution
  • Business machinery
  • Computers
  • Copiers
  • Desks and chairs
  • Fax machines
  • Spare parts, supplies and materials
  • Semi-trailers

(Items not covered include: motor vehicles; oil and gas leases including the prescribed personal property; oil and gas itemized personal property such as drilling equipment and rigs, pipe and casing; and public utility personal property except telecommunications, railroads and electric generation facilities utilizing renewable energy resources.)

Machinery and Equipment Expensing Deduction

Eligible Kansas taxpayers are allowed to claim an expense deduction for business machinery and equipment, placed in service in Kansas during the tax year. Only C-Corporations may claim the expense deduction against the corporate income tax liability. The expense deduction will not be available to other types of taxpayers. Privilege taxpayers may claim the expense deduction against the privilege tax liability.

The one-time deduction is allowed for each qualified purchase of machinery and equipment in the year that it is placed in service. The unused expense deduction is treated as a Kansas net operating loss that may be carried forward for 10 years. However, the Kansas net operating loss deduction is only available to C-Corporations and is no longer available to other types of taxpayers.
Eligible investment is machinery and equipment depreciable under the Modified Accelerated Cost Recovery System (MACRS) in section 168 of the Internal Revenue Code, or canned software as defined in section 197 of the Internal Revenue Code. Examples of eligible equipment include manufacturing equipment, office furniture, computers, software and racking. Part of the deduction is recaptured if the property is later sold or moved outside of Kansas during its applicable recovery period.

Property Tax Exemptions

The board of county commissioners or the governing body of a city may exempt certain business property from ad valorem taxation. Qualifying properties must be used exclusively for manufacturing articles of commerce, conducting research, and development or storing goods or commodities that are sold or traded in interstate commerce.

The tax exemption includes all or any portion of the appraised value of buildings and commensurate land and improvements. Property additions and expansions of existing businesses are eligible for the property tax exemption if new jobs are created as a result of such activity.

A total or partial ad valorem tax exemption may be in effect for up to 10 years after the calendar year in which the business commences its operations or an expansion is completed (Art. 11, Sec. 13, Kansas Constitution).

Items of machinery, equipment, materials and supplies used for business purposes with a retail cost when new of $1,500 or less are exempt from property tax. (K.S.A. 79-201w). Aircraft used predominantly in the conduct of the owner’s business or industry is exempt from property tax (K.S.A. 79-201k).

Property Tax Exemptions for Electrical Power and Renewable Energy Generators

Kansas offers incentives to increase the amount of electric power generated in the state. These incentives work for the construction or expansion of electricity generating facilities for both independent power producers (so-called “merchant power plants”) and rate-based utilities. Independent power producer facilities are exempt from property taxes from the commencement of construction and for 12 years after the taxable year in which construction is completed. The eligibility period for plants used exclusively during peak load periods is six years. Electricity generation facilities constructed by regulated public utilities are exempt for 10 years (four years for peak load plants) (K.S.A. 79-259).

Transmission lines and equipment constructed by regulated public utilities after Jan. 1, 2001, also receive a 10-year property tax exemption (K.S.A. 79-259). (Nuclear power plants do not qualify for these exemptions.) The Kansas Development Finance Authority is authorized to issue revenue bonds to pay the construction costs of pollution control equipment at power plants.

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Sales Tax Exemptions

There are a number of sales tax exemptions available in Kansas per state statute. Find all exemptions and application forms in this booklet:

Exemption Certificates Pub

Some of our key sales tax exemptions:

  • 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 (WATS). The gross receipts from sales of interstate telephone or telegraph services utilizing a WATS 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.

Tax Exemptions for Industrial Revenue Bonds

Businesses using Industrial Revenue Bonds (IRBs) as a financing mechanism may enjoy certain tax exemptions:

  • Property financed with IRBs is exempt from ad valorem taxation for up to 10 years after the bonds are issued. However, localities may elect to negotiate payments in lieu of taxes (K.S.A. 79-201a).
  • The cost of construction labor, building materials and machinery and equipment is exempt from state and local sales taxes if financed by IRBs (K.S.A. 79-3603).