Is equipment removed from oil and gas leases taxable when sold as salvage in Kansas?

Plain-English summary

Someone asked whether tangible equipment removed from oil and gas leases is taxable when sold as salvage. The Department ruled that it is taxable — "unless the seller makes such sales no more often than once a year."

"Generally, all sales of any tangible personal property by a retailer are subject to Kansas sales tax. Taxable sales include sales of items removed from real property and sold as salvage." By analogy, "if a demolition business salvages window, doors, and other items from the buildings it demolishes and sells those items to the public, the business is required to register as a retailer and collect sales tax." "Similarly, if you remove property from oil and gas leases and resell them to the public or to other well owners, you must register and collect sales tax on the sales of the items. In Kansas, there is no general exemption for sale of well drillings or pumping equipment."

Two relief paths exist. For resale: "if the salvaged items are sold to . . . a retailer for resale, the retailer can provide the seller (often a wholesaler or manufacturer) with a resale exemption certificate to exempt their purchase." And for one-off sellers: "[t]he exception for isolated or occasional sales applies if someone sells items they acquired for their own use or consumption once a year or less often," which "includes selling events like garage sale." So "a lease owner can remove equipment from their lease site and sell the equipment at one sale during the year without being required to register and collect the tax."

What this means for you

Sellers of salvaged well equipment

If you routinely remove equipment from oil and gas leases and resell it to the public or to other well owners, you are a retailer: register and collect Kansas sales tax. There is no special exemption for well drilling or pumping equipment.

Buyers who will resell

A buyer purchasing the salvaged equipment for resale can give you a resale exemption certificate, so that purchase is not taxed — the tax is collected when the item is ultimately sold to a consumer.

One-time sellers

A lease owner who sells off equipment they had used themselves, in a single sale once a year or less, makes an isolated or occasional sale (like a garage sale) and does not have to register or collect tax.

Common questions

Q: Do I charge sales tax when I sell salvaged oil and gas lease equipment?
A: Yes, if you make such sales regularly — you must register as a retailer and collect tax. There is no general exemption for well equipment.

Q: When is a salvage sale not taxable?
A: When it is an isolated or occasional sale — the seller disposes of equipment they used themselves in a single sale once a year or less.

Q: Can a purchase be exempt?
A: Yes, if the buyer is acquiring the items for resale and provides a resale exemption certificate.

Citations and references

• The Department did not cite a specific statute number. It applied the general rule that retail sales of tangible personal property — including items severed from real property and sold as salvage — are taxable, subject to the resale exemption (with a resale certificate) and the isolated-or-occasional-sale exception for a seller who makes such a sale once a year or less.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2000-013

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

July 31, 2000

XXXX
XXXX
XXXX

RE: Your e-mail dated July 26, 2000

Dear XXXX:

I have been asked to answer your e-mail inquiry that we received last week. You ask if tangible equipment removed from oil and gas leases would be taxable when sold as salvage. The answer is yes, unless the seller makes such sales no more often than once a year.

Generally, all sales of any tangible personal property by a retailer are subject to Kansas sales tax. Taxable sales include sales of items removed from real property and sold as salvage. Thus, if a demolition business salvages window, doors, and other items from the buildings it demolishes and sells those items to the public, the business is required to register as a retailer and collect sales tax on the sales. Similarly, if you remove property from oil and gas leases and resell them to the public or to other well owners, you must register and collect sales tax on the sales of the items. In Kansas, there is no general exemption for sale of well drillings or pumping equipment. However, if the salvaged items are sold to sold to a retailer for resale, the retailer can provide the seller (often a wholesaler or manufacturer) with a resale exemption certificate to exempt their purchase.

The exception for isolated or occasional sales applies if someone sells items they acquired for their own use or consumption once a year or less often. Under this definition, isolated or occasional sales includes selling events like garage sale. In the case of well equipment, this means that a lease owner can remove equipment from their lease site and sell the equipment at one sale during the year without being required to register and collect the tax. I hope that this answers all of your question. If not, please call me at (785) 296-3081.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 08/09/2000 Date Modified: 10/10/2001

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