Did a Kentucky brick maker's sales tax resale certificate exempt water used in making bricks from the school utility tax?

Plain-English summary

A brick manufacturer held a sales tax resale certificate and asked whether buying water to make bricks qualified for the resale exclusion in Kentucky's school utility gross receipts tax. The AG said no. KRS 160.613 excluded receipts from furnishing utilities that were themselves resold. It did not treat water consumed as a brickmaking material as a resale of the water utility.

The opinion described this tax as a direct tax on the utility provider, rather than on the customer. Although water might remain in a finished brick, the AG reasoned that buyers purchased bricks, not water as a utility. The manufacturer's certificate for sales tax purposes did not change that result under the utility tax provision.

Currency note

This opinion was issued in 1992. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

Brick manufacturers using purchased water

The AG treated the purchased water as a production input, even if some water became part of the brick. That use did not meet the statute's exclusion for utilities resold as utilities.

Utility providers and school tax administrators

The opinion placed the gross receipts license tax on the provider of utilities. It said the supplier's receipts from furnishing the water in this fact pattern were within the tax, because the manufacturer was not reselling water as a utility.

Common questions

Did a sales tax resale certificate exempt the manufacturer's water purchase?

No. The opinion described the certificate but applied the separate resale language of KRS 160.613 to the water transaction.

Was water inside the finished brick considered resold water?

The AG said no. Water used as a brickmaking material was not resold as a utility when customers bought the finished bricks.

Who bore the school utility gross receipts tax under the opinion?

The AG described it as a direct tax on the utility provider's receipts, not a tax imposed on the consumer.

Background and statutory framework

KRS 160.613 authorized a county school utility gross receipts license tax on receipts from furnishing specified utilities, including water. The statute excluded amounts received for utilities that would be resold. Reading that provision with its earlier opinions, the AG limited the exclusion to resale of the utility itself and found that the brick manufacturer's use fell outside it.

Citations and references

• KRS 160.613: school utility gross receipts tax and resale exclusion.
• OAG 84-70: cited for the tax's incidence on utility providers.
• OAG 76-269: cited for the utility resale exclusion.

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG92-022.htm

Original opinion text

OAG 92-22

February 12, 1992

Hon. Carl D. Edwards, Jr.

VanAntwerp, Monge, Jones & Edwards

1416 Winchester Avenue

Ashland, Kentucky 41101

Dear Mr. Edwards:

You have asked the Attorney General for an opinion regarding the applicability of the utility gross receipts license tax for schools to the purchase of water by a brick manufacturing company.

You state that the brick manufacturer holds a resale exemption certificate issued for sales tax purposes. The manufacturer believes that it may be entitled to a resale exemption for its purchase of water.

The utility gross receipts license tax for schools is a direct tax on the provider of utilities; it is not a tax on the consumer. OAG 84-70. The pertinent text of the statute, KRS 160.613, says:

(1) There is hereby authorized a utility gross receipts license tax for schools not to exceed three per cent (3%) of the gross receipts derived from the furnishing, within the county, of telephonic and telegraphic communications services, electric power, water, and natural, artificial, and mixed gas. “Gross receipts” includes all amounts received in money, credits, property, or other money's worth in any form, as consideration for the furnishing of the above utilities, except that “gross receipts” shall not include amounts received for furnishing energy or energy-producing fuels, used in the course of manufacturing, processing, mining, or refining to the extent that the cost of the energy or energy-producing fuels used exceeds three per cent (3%) of the cost of production, and shall not include amounts received for furnishing any of the above utilities which are to be resold.

While the statute does contain an exemption for utilities that are resold, it is obvious that the exemption applies only to utility purchases that are resold as utilities, in which event the reseller becomes liable for the tax as a supplier of the utility. OAG 76-269. In the case of the brick manufacturer, presumably the water purchases represent the cost of a raw material necessary for production. Although the water may be a component of the finished bricks, nobody buys bricks to get the water out of them. Therefore the manufacturer may not be deemed to be reselling the water utility, and consequently its water purchases are taxable.

Sincerely,

Chris Gorman

Attorney General

Ross T. Carter

Assistant Attorney General