Manufacturing Machinery and Equipment Sales Tax Exemption
The sale of machinery and equipment (including repair and replacement parts and accessories) which is used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility is exempt from sales tax effective July 1, 2000. The installation, repair and maintenance services performed on this equipment shall also be exempt from sales tax.
The law benefits manufacturing or processing businesses. The law defines "manufacturing or processing business" as a business that utilizes an integrated production operation to manufacture, process, fabricate, finish, or assemble items for wholesale and retail distribution as part of what is commonly regarded as a industrial manufacturing or processing operation or a agricultural commodity processing operation. The exemption does not apply to retail operations or other non-industrial businesses. Retail operations and non-industrial businesses include, but are not limited to: contractors; construction companies; retail businesses that prepare food products for consumption by the buyer on or off premises; businesses that service or refurbish property that is returned to its owner, such as repair shops and machine shops; copying services, photo finishing services, and similar businesses that perform services for retail customers; telephone companies; and utility transmission and distribution operations.
Qualifications
Machinery and equipment shall be considered used as an integral or essential part of an integrated production operation when used to:
- receive, transport, convey, handle, treat or store raw materials in preparation of its placement on the production line;
- transport, convey, handle or store the property undergoing manufacturing or processing at any point from the beginning of the production line through any warehousing or distribution operation of the final product that occurs at the plant or facility;
- effect, promote or otherwise facilitate a physical change to the property undergoing manufacturing or processing;
- guide, control or direct the movement of property undergoing manufacturing or processing;
- test or measure raw materials, the property undergoing manufacturing or processing or the finished product, as a necessary part of the manufacturer's integrated production operations;
- plan, manage, control, or record the receipt and flow of inventories of raw materials, consumables and component parts, the flow of the property undergoing manufacturing or processing and the management of inventories of the finished product;
- produce energy for, lubricate, control the operating of or otherwise enable the functioning of other production machinery and equipment and the continuation of production operations;
- package the property being manufactured or processed in a container or wrapping in which such property is normally sold or transported;
- transmit or transport electricity, coke, gas, water, steam or similar substances used in production operations from the point of generation, if produced by the manufacturer or processor at the plant site, to that manufacturer's production operation; or if purchased or delivered from offsite, from the point where the substance enters the site of the plant or facility to that manufacturer's production operations;
- cool, heat, filter, refine or otherwise treat water, steam, acid, oil, solvents or other substances that are used in production operations;
- provide and control an environment required to maintain certain levels of air quality, humidity or temperature in special and limited areas of the plant or facility, where such regulation of temperature or humidity is part of and essential to the production process;
- treat, transport or store waste or other byproducts of production operations at the plant or facility;
- control pollution at the plant or facility where the pollution is produced by the manufacturing or processing operation.
In addition to exempting the machinery and equipment used in integrated production operation at a plant or facility, certain other items are exempt even though they are not production machinery or equipment. These include:
- computers and related peripheral equipment that are utilized by a manufacturing or processing business for engineering of the finished product or for research and development or product design;
- machinery and equipment that is utilized by a manufacturing or processing business to manufacture or rebuild tangible personal property that is used in manufacturing or processing operations, including tools, dies, molds, forms and other parts of qualifying machinery and equipment;
- portable plants for aggregate concrete, bulk cement and asphalt including cement mixing drums to be attached to a motor vehicle;
- industrial fixtures, devices, support facilities and special foundations necessary for manufacturing and production operations, and materials and other tangible personal property sold for the purpose of fabricating such fixtures, devices, facilities and foundations; and
- a manufacturing or processing business' laboratory equipment that is not located at the plant or facility but that would otherwise qualify for exemption.
Machinery and equipment used as an integral or essential part of an integrated production operation shall NOT include:
- machinery and equipment used for nonproduction purposes, including, but not limited to, machinery and equipment used for plant security, fire prevention, first aid, accounting, administration, record keeping, advertising, marketing, sales or other related activities, plant cleaning, plant communications, and employee work scheduling;
- machinery, equipment and tools used primarily in maintaining and repairing any type of machinery and equipment or the building and plant;
- transportation, transmission and distribution equipment not primarily used in a production, warehousing or material handling operation at the plant or facility, including the means of conveyance of natural gas, electricity, oil or water, and related equipment located outside the plant or facility. Transportation equipment includes pipes for pipeline transmission, and equipment used to filter, purify, or otherwise condition or modify water, gas or other substances being transported by pipeline;
- office machines and equipment including computers and related peripheral equipment not used directly and primarily to control or measure the manufacturing process;
- furniture and other furnishings;
- buildings, other than exempt machinery and equipment that is permanently affixed to or becomes a physical part of the building, and any other part of real estate that is not otherwise exempt;
- building fixtures that are not integral to the manufacturing operation, such as utility systems for heating, ventilation, air conditioning, communications, plumbing or electrical;
- machinery and equipment used for general plant heating, cooling, and lighting;
- motor vehicles that are registered for operation on public highways; and
- employee apparel, except safety and protective apparel that is purchased by an employer and furnished gratuitously to employees who are involved in production or research activities.
Procedures to Claim the Exemption
A manufacturer/purchaser may download the Integrated Production Machinery and Equipment Exemption Certificate, form ST-201 to claim exemption from sales tax. You may also call the Department of Revenue voice mail system at 785-296-4937 to request from ST-201. You will be asked to give your name, address, phone number and form(s) you desire. Please allow two weeks for delivery of your forms.
Sales Tax Exemption for a Specific Project
Effective Jan. 1, 2012, an exemption from sales tax is granted on all tangible personal property or services purchased for the purpose of and in conjunction with the construction, reconstruction, expansion or remodeling of a business which meets the requirements of a qualified firm defined in K.S.A. 74-50,131 (HPIP). Machinery and equipment purchased and installed at the business which meets the requirements of an HPIP qualified firm is also exempt from sales tax.
Effective July 1, 2014, an exemption from sales tax is allowed for all sales of tangible personal property or services purchased for the construction, reconstruction, enlarging or remodeling of a business identified under the North American industry classification system (NAICS) subsectors: 112112-Cattle Feedlots; 112120-Dairy Cattle and Milk Production; 112210 Hog and Pig Farming; 1123-Poultry and Egg Production; or 1124-Sheep and Goat Farming. The sale and installation of machinery and equipment purchased for installation at the business shall also be exempt from sales tax. Only those projects that have total actual costs of $50,000 or more will qualify.
The following types of entities may qualify for the sales tax exemption:
Qualifications:
HPIP Certified Business
A business qualifies for a sales tax exemption if it is certified as a qualified firm by the Secretary of Commerce and is entitled to the training and education tax credit or has participated during the tax year in which the exemption is claimed in training assistance by the Department of Commerce under the Kansas industrial training (KIT), Kansas industrial retraining (KIR) or State of Kansas investments in lifelong learning (SKILL) program.
Agricultural Business
An agricultural business must be identified under the North American industry classification system (NAICS) subsectors: 112112-Cattle Feedlots; 112120-Dairy Cattle and Milk Production; 112210 Hog and Pig Farming; 1123-Poultry and Egg Production; or 1124-Sheep and Goat Farming. This qualifying NAICS must be on file with the Kansas Department of Labor for your specific facility address that has been provided on this application. Only those projects that have total actual costs of $50,000 or more will qualify.
Procedures to Claim the Exemption
You can apply online for the exemption at www.ksrevenue.gov/prpecwelcome.html. If you are unable to apply online, please contact our office at 785-296-3081 or by email: kdor_ExemptCert@ks.gov.
UTILITY SALES TAX EXEMPTION
Electricity, gas or water may be exempt from sales tax depending on the use of the utility. Utilities used in the following industries and ways are exempt from sales tax.
Agricultural
Any utility use related to farming or ranching, such as the electricity needed to operate milking machines or to run a grain auger is exempt from the state sales tax. Agricultural use is subject to any applicable city and/or county sales tax in effect at the customers location.
Irrigation of Crops
Electricity to run an irrigation pump and the water applied to growing crops is exempt from sales tax.
Noncommercial Residential
The utilities used in your home for non-business purposes are exempt from state sales tax. Noncommercial residential use is subject to any applicable city and/or county sales tax in effect at the customers location.
Ingredient or Component Part
Electricity, gas or water that is considered to be an ingredient or component part is exempt from sales tax. An ingredient or component part:
- is necessary and essential to the finished product;
- is used in or on the finished product;
- becomes a physical part of the finished product, and;
- becomes an ingredient or compound part of property or services for retail sale.
Consumed in Production
Electricity, gas or water that is considered to be consumed in production is exempt from sales tax. Consumed in production means:
- necessary and essential to the process;
- used in the actual process;
- consumed or dissipated by the process within one year;
- used in the process of producing, manufacturing, processing, mining, drilling, refining or compounding of tangible personal property, the treatment of by-products or wastes from such production process, the providing of services, the irrigation of crops, or the storage and processing of grain; and
- not reusable for such purposes.
Providing Taxable Services
To qualify for a utility sales tax exemption, the service provided must be subject to sales tax. Utilities used by those who provide non-taxable services, such as a doctor, lawyer, accountant or child care center are taxable. Utilities actually used in rooms occupied by hotel guests are exempt from sales tax, but utilities used in lobbies.
Movement in Interstate Commerce
Electricity or gas purchased to pump or push oil or gas through an interstate pipeline is exempt from sales tax. (The pipeline must be registered with the Federal Energy Regulatory Commission.)
Severing of Oil
Electricity or gas used to power pumps which remove oil or gas from the ground are exempt from sales tax. Electricity or gas used for lighting and other nonextraction purposes at the pump stations are subject to sales tax.
Utilities used to light, heat, cool, clean, or maintain equipment, buildings, or business facilities are TAXABLE.
Procedures to Claim the Exemption
You may download a Statement for Sales Tax Exemption on Electricity, Gas or Water Furnished Through One Meter, form BT/st-28B, to request a utility sales tax exemption. You will need to complete a form for each meter on which you are requesting an exemption. Using the instructions and examples that accompany the form, determine your exempt percentage. You may need the assistance of a plumber or electrician to complete the formula. You may also call the Department of Revenue voice mail system at 785-296-4937 to request form BT/st-28B. You will be asked to give your name, address, phone number and form(s) you desire. Please allow two weeks for delivery of your forms.
Repair and Replacement Parts and Accessories
Repair and replacement parts and accessories mean all parts and accessories for exempt machinery and equipment, including, but not limited to, dies, jigs, molds, patterns and safety devices that are attached to exempt machinery or that are otherwise used in production, and parts and accessories that require periodic replacement such as belts, drill bits, grinding wheels, grinding balls, cutting bars, saws, refractory brick and other refractory items for exempt kiln equipment used in production operations.
Integrated Production Operation
Integrated production operation means an integrated series of operations engaged in, at a manufacturing or processing plant or facility to process, transform or convert tangible personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed. Integrated production operations shall include:
- Production line operations, including packaging operations;
- Preproduction operations to handle, store and treat raw materials;
- Post production handling, storage, warehousing and distribution operations; and
- Waste, pollution and environmental control operations, if any.
MANUFACTURING OR PROCESSING PLANT OR FACILITY
Manufacturing or processing plant or facility means a single, fixed location owned or controlled by a manufacturing or processing business that consists of one or more structures or buildings in a contiguous area where integrated production operations are conducted to manufacture or process tangible personal property to be ultimately sold at retail. Such term shall not include any facility primarily operated for the purpose of conveying or assisting in the conveyance of natural gas, electricity, oil or water. A business may operate one or more manufacturing or processing plants or facilities at different locations to manufacture or process a single product of tangible personal property to be ultimately sold at retail.
Production Line
Production line means the assemblage of machinery and equipment at a manufacturing or processing plant or facility where the actual transformation or processing of tangible personal property occurs.
Manufacturing or Processing Business
Manufacturing or processing business means a business that utilizes an integrated production operation to manufacture, process, fabricate, finish, or assemble items for wholesale and retail distribution as part of what is commonly regarded by the general public as an industrial manufacturing or processing operation or an agricultural commodity processing operation.
Manufacturing or processing businesses do not include, and is not limited to:
- nonindustrial businesses whose operations are primarily retail and that produce or process tangible personal property as an incidental part of conducting the retail business, such as retailers who bake, cook or prepare food products in the regular course of their retail trade,
- grocery stores,
- meat lockers and meat markets that butcher or dress livestock or poultry in the regular course of their retail trade,
- contractors who alter, service, repair or improve real property, and
- retail businesses that clean, service or refurbish and repair tangible personal property for its owner.
Primary or Primarily
Primary or primarily means more than 50 percent of the time.
Industrial Manufacturing or Processing Operation
Industrial manufacturing or processing operations include, but are not limited to:
- the fabrication of automobiles, airplanes, machinery or transportation equipment,
- the fabrication of metal, plastic, wood, or paper products,
- electricity power generation,
- water treatment,
- petroleum refining,
- chemical production,
- wholesale bottling,
- newspaper printing,
- ready mixed concrete production, and
- the remanufacturing of used parts for wholesale or retail sale.
Processing operations shall include operations at an:
- oil well, gas well, mine or other excavation site where the oil, gas, minerals, coal, clay, stone, sand or gravel that has been extracted from the earth is cleaned, separated, crushed, ground, milled, screened, washed, or otherwise treated or prepared before its transmission to a refinery or before any other wholesale or retail distribution.
Agricultural Commodity Processing Operations
Agricultural commodity processing operations include, but are not limited to:
- meat packing,
- poultry slaughtering and dressing,
- processing and packaging farm and dairy products in sealed containers for wholesale and retail distribution,
- feed grinding ,
- grain milling,
- frozen food processing, and
- grain handling, cleaning, blending, fumigation, drying and aeration operations engaged in by grain elevators or other grain storage facilities.
Full-time Employees
A full-time employee is a person required to file a Kansas income tax return and is employed by a business or retail business to perform duties in connection with the operation of the business or retail business on:
- a regular, full-time basis;
- a part-time basis, provided the person is customarily performing the duties at least 20 hours per week throughout the taxable year; or
- a seasonal basis, provided the person performs duties for substantially all of the season customary for the position in which the person is employed.
The number of full-time employees during any taxable year is the sum of full-time employees on the last business day of each month of the taxable year divided by 12. If the business or retail business is in operation for less than the entire taxable year, the number of full-time employees is determined by dividing the sum of full-time employees on the last business day of each full calendar month during the portion of the taxable year during which the business was in operation by the number of full calendar months during the period.
Business Headquarters
Business headquarters is a facility where principal officers of the business are housed and from which direction, management or administrative support for transactions is provided for a business or division of a business or regional division of a business.
Ancillary Support
Ancillary support of an enterprise is a facility operated by a business and whose function is to provide services in support of the business, but is not directly engaged in the business' primary function.
Electronic Shopping & Mail-order Houses
This industry comprises establishments primarily engaged in retailing all types of merchandise using non-store means, such as catalogs, toll free telephone numbers, or electronic media, such as interactive television or computer. Included in this industry are establishments primarily engaged in retailing from catalog showrooms or mail-order houses.
Software Publishers
This industry comprises establishments primarily engaged in computer software publishing or publishing and reproduction. Establishments in this industry carry out operations necessary for producing and distributing computer software, such as designing, providing documentation, assisting in installation, and providing support services to software purchases. These establishments may design, develop, and publish, or publish only.
Cities in Kansas with a Population of 2500 or Less
Counties in Kansas with a Population of 10,000 or Less
Certified as a Qualified Firm
The Secretary of Commerce will certify a business as a qualified firm if the following requirements have been met:
- Must be a for-profit establishment subject to state
income, sales or property taxes; AND EITHER,
- Identified under the North American Industry classification system, subsectors 311 to 339 (manufacturing) or the appropriate North American Industry Classification System (NAICS) designation as in effect Oct. 1, 2000;OR,
- Identified under the North American Industry classification system, subsectors 221, 423 to 425, 481 to 519, 521 to 721, and 811 to 928. At least 51 percent of the sales made by these groups must be to Kansas manufacturers and/or out-of-state commercial customers and/or out-of-state government agencies; OR,
- Identified as a corporate or regional headquarters or back office operation of a national or multi-national corporation regardless of NAICS code; AND EITHER,
- The company pays above average wages compared to other firms in its appropriate NAICS designation; OR,
- Is the only company in its appropriate NAICS designation; OR,
- Pays an average wage of at least 1.5 times the average wage paid by other industries (covered by the employment security law based on data maintained by the Secretary of Human Resources) but excluding compensation paid to owners with a 5 percent or more interest.
- Received written approval from the Secretary of Commerce for participation and has participated, during the tax year for which the exemption is claimed, in the Kansas industrial training (KIT), Kansas industrial retraining (KIR) or the state of Kansas investments in lifelong learning (SKILL) program OR
- Meets the qualifications for the tax credit under K.S.A. 74-50,132 (the training tax credit)