How does Kansas sales tax apply to sales of gas, electricity, heat, and water?

Plain-English summary

Someone asked the Department a general question about how Kansas taxes utilities. The Department explained that the answer requires reading three provisions together — the sales tax act's imposition section, its exemption section, and the local sales tax act. The bottom line: Kansas homeowners pay local sales tax (but not the state tax) on their utilities, while most commercial establishments pay both state and local sales tax.

Here is how the pieces fit:

• Imposition. The retailers' sales tax act imposes state sales tax on "the gross receipts from the sale or furnishing of gas, water, electricity and heat," whether furnished by a municipal or a private utility (K.S.A. 79-3603(c)).
• Exemption. K.S.A. 79-3606(w) exempts utilities delivered through mains, lines, or pipes (1) to residential premises for noncommercial use by the occupant, (2) for agricultural use (and, for that use, propane gas), (3) for use in severing oil, and (4) to property that is exempt from property tax under K.S.A. 79-201b Second through Sixth (which includes many nursing homes).
• Local tax. The local sales tax act (K.S.A. 12-189a) then imposes local sales tax on residential and agricultural utilities, on residential propane/LP-gas/coal/wood and other heating or lighting fuels, and on intrastate telephone and telegraph services for noncommercial use.

Because the state exemption removes residential and agricultural utilities from the state tax but the local act still reaches them, homeowners end up paying only the local piece. Commercial users, whose utilities generally are not exempt, pay both.

The Department also flagged two additional exemptions: utilities consumed in production (its example: the electricity that runs a stamping press at an auto manufacturer) and utilities that become an ingredient or component part of something manufactured for resale (its example: water mixed with syrup in a soft-drink bottling operation). The Department enclosed form BT/ST-28B to claim exemption and cautioned that, contrary to what the requester's letter seemed to assume, "there is no exemption simply because someone has a tax number" — a business must actually consume the utility in a qualifying way.

What this means for you

Homeowners

You generally pay local sales tax on your natural gas, electricity, heat, and water for your home, but not the state sales tax. Residential use is exempt from the state tax under K.S.A. 79-3606(w).

Commercial and most other businesses

Unless a specific exemption applies, your utility purchases are taxable at both the state and local level. Holding a sales tax registration number does not, by itself, exempt your utilities.

Manufacturers and producers

If a utility is consumed in your production process or becomes an ingredient or component part of a product you make for resale, it can qualify for exemption — but you must be able to show the qualifying use and claim it on the proper form (BT/ST-28B).

Farmers

Utilities for agricultural use are exempt from the state tax, but the local sales tax still applies to agricultural utility use.

Common questions

Q: Do Kansas homeowners pay sales tax on their utilities?
A: They pay local sales tax on residential utilities, but the state sales tax is exempted for noncommercial residential use.

Q: Are a business's utilities exempt if it has a tax number?
A: No. There is no exemption merely for holding a tax number. Most commercial utility purchases are taxable at both the state and local level unless a specific exemption (such as consumed-in-production) applies.

Q: When are utilities exempt for a manufacturer?
A: When they are consumed in the production process or become an ingredient or component part of a product made for resale — for example, electricity running a press, or water mixed into a bottled beverage.

Citations and references

• K.S.A. 79-3603(c) — imposes state sales tax on sales of gas, water, electricity, and heat.
• K.S.A. 79-3606(w) — exempts from the state tax utilities for noncommercial residential use, agricultural use, oil severance, and delivery to property exempt under K.S.A. 79-201b Second through Sixth.
• K.S.A. 12-189a — the local sales tax act provision imposing local sales tax on residential and agricultural utilities and on noncommercial intrastate telephone/telegraph service.
• K.S.A. 79-201b (Second through Sixth) — property-tax exemptions that, when met, also exempt the property's utilities under 79-3606(w).
• The letter also references K.S.A. 79-4216 (definition of "severing") and K.S.A. 12-187 et seq. (the cities' and counties' taxing authority), and encloses form BT/ST-28B for claiming exemption.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1999-025

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

October 21, 1999

XXXX
XXXX
XXXX

RE: Your letter of October 13, 1999

Dear XXXX:

I have been asked to answer your letter received earlier this month. In it, you ask about the taxation of utilities.

To determine the taxation of utilities under Kansas law, the retailers’ sales tax act’s imposition section and exemption section must be read along with the local sales tax act. The sales tax act contains a broad imposition on sales of utilities. It then exempts the sale of such utilities for noncommercial residential use, ag use, oil severance, and for certain other entities that are exempted under K.S.A. 79-201b Second through Sixth, which includes many nursing homes. The local sales tax act then imposes local sales tax on certain uses.

The imposition section of the retailers’ sales tax act imposes state sales tax on:

the gross receipts from the sale or furnishing of gas, water, electricity and heat, which sale is not otherwise exempt from taxation under the provisions of this act, and whether furnished by municipally or privately owned utilities...K.S.A. 79-3603(c)

The exemption section exempts:

all sales of natural gas, electricity, heat and water delivered through mains, lines or pipes: (1) To residential premises for noncommercial use by the occupant of such premises; (2) for agricultural use and also, for such use, all sales of propane gas; (3) for use in the severing of oil; and (4) to any property which is exempt from property taxation pursuant to K.S.A. 79-201b Second through Sixth. As used in this paragraph, "severing" shall have the meaning ascribed thereto by subsection (k) of K.S.A. 79-4216, and amendments thereto K.S.A. 79-3606(w)

The local sales tax act imposes local sales tax on:

The following sales shall be subject to the taxes levied and collected by all cities and counties under the provisions of K.S.A. 12-187 et seq. and amendments thereto:

(a) All sales of natural gas, electricity, heat and water delivered through mains, lines or pipes to residential premises for noncommercial use by the occupant of such premises and all sales of natural gas, electricity, heat and water delivered through mains, lines or pipes for agricultural use;
(b) All sales of propane gas, LP-gas, coal, wood and other fuel sources for the production of heat or lighting for noncommercial use of an occupant of residential premises;
(c) All sales of intrastate telephone and telegraph services for noncommercial use. K.S.A. 12-189a

The result of these impositions and exemptions is that Kansas homeowners are required to pay local tax on their utilities services, while commercial establishments generally are required to pay both state and local sales tax on the services.

In addition to the exemptions and exception quoted above, Kansas law exempts utilities that are consumed in production and ones that become ingredient and component parts of something being manufactured for resale. Examples of a utility that is consumed in production is the electricity consumed in running a stamping press at a automobile manufacturer. An example of a utility service that is an ingredient or component part would be water that is mixed with syrup in a soft drink bottling operation.

I have enclosed a copy of form BT/st-28B (Rev. 2/99) that can be used to claim exemption. This form provides further discussion of when utilities are exempt under Kansas laws. Please note that, contrary to what your letter seems to imply, there is no exemption simply because someone has a tax number. To be exempt, retailers must consume the utility in a way that qualifies as exemption under one of the statutory exemptions. Most commercial enterprises must pay both state and local tax on their utility purchases and may not claim exemption.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosure

Date Composed: 03/28/2000 Date Modified: 10/10/2001

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