Is water used to water livestock held for resale subject to Kansas sales tax?

Plain-English summary

A water seller asked whether sales of water used to water cattle should be taxed or exempted. The Department ruled that water used exclusively to water livestock held for resale is exempt from both state and local sales tax, because it is "consumed in production."

"Please be advised that sales of water used exclusively to water livestock held for resale is exempt from state and local tax. This water is considered to be 'consumed in production.' See K.S.A. 79-3602(m) and K.S.A. 79-3603(n)." The Department noted "[t]his same rule exempts sales of water used exclusively to irrigate of crops."

Other agricultural or residential water is treated differently. K.S.A. 79-3606(w) exempts piped water sold "to a residential premise for noncommercial use by the occupant" and "for agricultural use" from the state sales tax, while K.S.A. 12-189a(a) imposes the local sales tax on those same piped-water sales. The result: "piped water sales for residential and agricultural use are subject to local sales tax in place at the place of residence but exempt from the 4.9% state sales tax." But the consumed-in-production exemption in K.S.A. 79-3606(n) applies for local tax purposes too, so "water that is sold to farmers and ranchers that is consumed in production is exempt from both state and local sales tax."

The Department stressed the exemption "[is] not automatic": to claim it, "the farmer or rancher must apply to you in writing using a form produced by the department."

What this means for you

Water sellers to farms and ranches

Water you sell that is used exclusively to water livestock held for resale — or to irrigate crops — is exempt from both state and local sales tax as "consumed in production." Water for residential use or general agricultural use is exempt from the 4.9% state tax but still subject to local sales tax where the customer lives or farms.

Farmers and ranchers

The livestock-watering and irrigation exemptions do not apply on their own. You must give the seller a written, department-produced exemption form before the water can be sold to you tax-free.

Watch the "held for resale / consumed in production" line

The exemption is tied to water used for livestock held for market or to irrigate crops. Water put to general agricultural or household use does not get the full exemption — only relief from the state portion.

Common questions

Q: Is water used to water cattle taxable in Kansas?
A: Not if the cattle are livestock held for resale and the water is used exclusively for that — then it is exempt from both state and local sales tax as consumed in production. Water for general or residential use is only exempt from the state portion.

Q: Does the same rule cover crop irrigation?
A: Yes. Water used exclusively to irrigate crops is exempt on the same "consumed in production" basis.

Q: Do farmers have to do anything to get the exemption?
A: Yes. It is not automatic — the farmer or rancher must apply to the seller in writing on a form the department produces.

Citations and references

• K.S.A. 79-3602(m) — defines/supports the "consumed in production" treatment the Department applied to water used to water livestock held for resale and to irrigate crops.
• K.S.A. 79-3603(n) — cited together with 79-3602(m) as the basis for exempting water consumed in production.
• K.S.A. 79-3606(w) — exempts piped water sold to a residential premise for noncommercial use and for agricultural use from the state sales tax.
• K.S.A. 79-3606(n) — the consumed-in-production exemption, which the Department read as applying for local sales tax purposes as well, so consumed-in-production water is exempt from both state and local tax.
• K.S.A. 12-189a(a) — the local sales tax act provision that imposes local sales tax on piped water, natural gas, and electricity sold for residential and agricultural use.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2000-030

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

October 30, 2000

XXXX
XXXX
XXXX

RE: Your letter dated October 19, 2000

Dear XXXX:

I have been asked to answer your letter that we received earlier this month. In it, you ask if sales of water used to water cattle should be taxed or exempted. Please be advised that sales of water used exclusively to water livestock held for resale is exempt from state and local tax. This water is considered to be “consumed in production.” See K.S.A. 79-3602(m) and K.S.A. 79-3603(n). This same rule exempts sales of water used exclusively to irrigate of crops. See K.S.A. 79-3602(m). Other water sold to farmer for residential and general agricultural use is subject to local sales tax in place at the farmer’s place of residence and farm operations.

K.S.A. 79-3606(w), which is found in the retailers’ sales tax act, exempts piped water, electricity, and piped natural gas that is sold “to a residential premise for noncommercial use by the occupant” and “for agricultural use.” This provision exempts such sales from state sales tax. K.S.A. 12-189a(a), which is found in the local sales tax act, specifies that local sales tax is imposed on sales of piped natural gas, electricity, and piped water delivered though mains “to a residential premise for noncommercial use by the occupant” and for “agricultural use.” These two provisions means that piped water sales for residential and agricultural use are subject to local sales tax in place at the place of residence but exempt from the 4.9% state sales tax.

The local sales tax act also directs:

Except as otherwise specifically provided in K.S.A. 12-189a, and amendments thereto, such tax shall be identical in its application, and exemptions therefrom, to the Kansas retailers' sales tax act and all laws and administrative rules and regulations of the state department of revenue relating to the Kansas retailers' sales tax shall apply to such local sales tax insofar as such laws and rules and regulations may be made applicable.

This provision requires the state and local sales tax acts to be administered the same, except for the exceptions set forth in K.S.A. 12-189a. Administering the provisions of these two acts the same means the department must recognize that the consumed in production exemption, which is found at K.S.A. 79-3606(n), applies for local tax purposes. The department has read this as requiring that water that is sold to farmers and ranchers that is consumed in production is exempt from both state and local sales tax but that water sold for general agricultural use is subject to local sales tax,. As noted, water consumed in production includes water used to irrigate crops or water used to water livestock held for market.

The sales tax exemptions for irrigation and watering livestock are not automatic. To claim them, the farmer or rancher must apply to you in writing using a form produced by the department. I have enclosed a form that you may duplicate and provide to those farmers and ranchers who want to claim the exemption.

I hope that this adequately answers all of your questions. If not, you can call me at (785) 296-3081 or visit our web site at www.ink.org/public/kdor/ .

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosure

Date Composed: 10/30/2000 Date Modified: 10/10/2001

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