What agricultural construction projects qualify for the new Kansas sales tax exemption?

Plain-English summary

Kansas Notice 14-13 (dated June 2014) announces a new sales tax exemption for building and equipping certain agricultural operations.

The exemption. House Substitute for Senate Bill 265 created new subsection (hhhh) of K.S.A. 2014 Supp. 79-3606, effective July 1, 2014. It exempts sales of tangible personal property or services purchased on or after July 1, 2014 for the purpose of, and in conjunction with, constructing, reconstructing, enlarging or remodeling a business in these NAICS subsectors, plus the sale and installation of machinery and equipment for such a business:

• 1123 -- Poultry and Egg Production
• 1124 -- Sheep and Goat Farming
• 112112 -- Cattle Feedlots
• 112120 -- Dairy Cattle and Milk Production
• 112210 -- Hog and Pig Farming

$50,000 floor. The exemption does not apply to projects with actual total costs under $50,000.

Project exemption certificate. A person contracting for a qualifying project must obtain a project exemption certificate from the state and furnish it to the contractor, who may then buy materials, machinery and equipment exempt and pass the certificate number to suppliers. On completion, the contractor gives the business owner a sworn statement that all purchases qualified; invoices are held five years and are subject to audit. Misuse of a certificate is a misdemeanor subject to the penalties in K.S.A. 79-3615(g). The Department said it would publish a request form for the certificate in June; the certificate cannot exempt purchases made before July 1, 2014.

Date note. The notice is dated only "June 2014" with no specific day printed; the issued date shown here reflects that month.

What this means for you

Poultry, sheep/goat, cattle-feedlot, dairy and hog operations

• If you are building, expanding or remodeling a qualifying operation (project cost $50,000 or more), your materials, services and installed machinery and equipment can be purchased free of sales tax with a project exemption certificate.

Contractors

• Get the certificate number from the project owner before making exempt purchases, keep invoices for five years, and give the owner the required sworn completion statement.

Common questions

Which operations qualify? Businesses in NAICS 1123, 1124, 112112, 112120 and 112210 -- poultry/egg, sheep/goat, cattle feedlots, dairy and hog/pig farming.

Is there a minimum project size? Yes -- the exemption does not apply to projects costing less than $50,000.

How is the exemption claimed? Through a project exemption certificate obtained from the state and furnished to contractors and suppliers.

Does it cover purchases before July 1, 2014? No.

Citations and references

• K.S.A. 2014 Supp. 79-3606(hhhh) -- the new agricultural-operations sales tax exemption.
• K.S.A. 79-3615(g) -- penalties for misuse of a project exemption certificate.
• House Substitute for 2014 Senate Bill 265 -- the enacting legislation.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 14-13

Original ruling text

Policy & Research Phone: 785-296-3081
915 SW Harrison St FAX: 785-296-7928
Topeka KS 66612-1588 www.ksrevenue.org
Nick Jordan, Secretary Department of Revenue Sam Brownback, Governor
Richard Cram, Director

                                     NOTICE 14-13

       NEW SALES TAX EXEMPTION FOR CERTAIN AGRICULTURAL OPERATIONS

                                2014 SENATE BILL 265

                                      (June 2014)

The Conference Committee Report on House Substitute for Senate Bill 265 was passed and
signed into law to provide a new sales tax exemption, effective July 1, 2014. New subsection
(hhhh) of K.S.A 2014 Supp. 79-3606 will exempt:

   (hhhh) all sales of tangible personal property or services purchased on or after
   July 1, 2014, for the purpose of and in conjunction with constructing,
   reconstructing, enlarging or remodeling a business identified under the North
   American industry classification system (NAICS) subsectors 1123, 1124, 112112,
   112120 or 112210, and the sale and installation of machinery and equipment
   purchased for installation at any such business. The exemption provided in this
   subsection shall not apply to projects that have actual total costs less than
   $50,000. When a person contracts for the construction, reconstruction,
   enlargement or remodeling of any such business, such person shall obtain from
   the state and furnish to the contractor an exemption certificate for the project
   involved, and the contractor may purchase materials, machinery and equipment
   for incorporation in such project. The contractor shall furnish the number of
   such certificates to all suppliers from whom such purchases are made, and such
   suppliers shall execute invoices covering the same bearing the number of such
   certificate. Upon completion of the project, the contractor shall furnish to the
   owner of the business a sworn statement, on a form to be provided by the
   director of taxation, that all purchases so made were entitled to exemption under
   this subsection. All invoices shall be held by the contractor for a period of five
   years and shall be subject to audit by the director of taxation. Any contractor or
   any agent, employee or subcontractor of the contractor, who shall use or
   otherwise dispose of any materials, machinery or equipment purchased under
   such a certificate for any purpose other than that for which such a certificate is
   issued without the payment of the sales or compensating tax otherwise imposed
   thereon, shall be guilty of a misdemeanor and, upon conviction therefor, shall be
   subject to the penalties provided for in subsection (g) of K.S.A. 79-3615, and
   amendments thereto.

The NAICS subsectors listed in subsection (hhhh) refer to the following businesses:

   1123 Poultry and Egg Production
   1124 Sheep and Goat Farming
   112112 Cattle Feedlots
   112120 Dairy Cattle and Milk Production
   112210 Hog and Pig Farming

In June, the department will publish a new form on its website for qualifying businesses to use to
request a project exemption certificate under new subsection (hhhh). (www.ksrevenue.org). To
request a project exemption certificate, the business must complete the request form and submit
it to the department. A project exemption certificate that the department issues under the new
subsection cannot be used to claim exemption on purchases the business makes before July 1,
2014.

                                  Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about income tax, please contact:

                              Taxpayer Assistance Center
                         Kansas Department of Revenue
                         915 SW Harrison St., 1st Floor
                            Topeka, KS 66612-1588
                             Phone: 785-368-8222
                               Fax: 785-291-3614