How did Kansas tax telephone, sewer, refuse, electricity, water, natural gas, and other utility services for homes and businesses?

Plain-English summary

A Florida engineering firm planned to solicit Kansas customers for utility-tax exemption and refund claims in exchange for a percentage of the benefit. It asked the Department to explain how Kansas taxed different utility services and how to submit claims.

Intrastate, interstate, and cellular telephone services were subject to state and local sales taxes for both businesses and residences, although K.S.A. 79-3603(b) excepted certain long-distance services. Sewer and refuse services were not subject to Kansas state or local sales tax.

Electricity, water, natural gas, and other fuel supplied to residential customers for noncommercial use were subject to local sales tax but exempt from state sales tax. Sales of those utilities to businesses were taxable unless the utility was consumed in production or became an ingredient or component part of property manufactured for resale.

The production exemption extended beyond industrial factories. The letter identified restaurant cooking equipment, pinball and pin-setting machines, mechanics' power tools, copy-center duplicating equipment, and similar productive uses, with details in Publication KS-1520.

For utility refunds or exemptions, the customer provided the utility with Form ST-28B when one meter served mixed uses or Form ST-28C when a meter supplied only exempt consumed-in-production utility. Nonutility refund requests went to the Department on Form ST-21.

These classifications reflect the statutes and forms discussed in 2004. Current utility definitions, rates, and claim procedures should be checked before relying on the historical letter.

What this means for you

Residential utility customers

The letter treated noncommercial home electricity, water, natural gas, and other fuel as exempt from state tax but still subject to local sales tax.

Businesses

Utility purchases were taxable unless use in production or as a product ingredient qualified. The exemption depended on how the utility was used, not merely the customer's industry.

Refund preparers

Use the utility-specific exemption certificate identified for the meter arrangement; use ST-21 for nonutility refund requests.

Common questions

Q: Were telephone services taxable?
A: Generally yes, at both the state and local levels, subject to the letter's noted exception for certain long-distance services.

Q: Were sewer and refuse services taxable?
A: No. The Department said neither state nor local sales tax applied.

Q: Were residential electricity and gas fully exempt?
A: No. Noncommercial residential use was exempt from state tax but subject to local tax.

Q: Could a business exempt utilities used in production?
A: Yes, when the utility was consumed in production or became an ingredient or component of the manufactured product.

Citations and references

• K.S.A. 2003 Supp. 79-3603(b) and 12-189a — telephone service taxation
• K.S.A. 2003 Supp. 79-3603(c), 79-3606(w), and 12-189a — residential utility treatment
• K.S.A. 2003 Supp. 79-3606(m) and 79-3602(dd) — utilities consumed in production
• Publication KS-1520 — exemption certificates and scope described by the Department
• Forms ST-28B, ST-28C, and ST-21 — utility exemption and refund forms identified in the letter

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2004-003

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

March 22, 2004

XXXX
XXXX
XXXX

RE: Your letter dated March 8, 2004

Dear XXXX:

Thank you for your recent letter. You work for a Key West, Florida, engineering firm that intends to solicit Kansas residents to file sales tax exemption and refund claims on their behalf for taxes paid on their telephone and utility bills. Your company will retain a percentage of any tax refund or tax exemption entitlement that is obtained. You ask how utility services are taxed in Kansas and how your business should go about filing refund requests and exemption claims.

Intrastate, interstate, and cellular telephone services are subject to state and local sales taxes in Kansas. These telephone services are taxable whether provided to a business or to a residence. K.S.A. 2003 Supp. 79-3603(b); K.S.A. 2003 Supp. 12-189a. K.S.A. 2003 Supp. 79-3603(b) excepts certain long distance services from the sales tax imposition.

Sewer and refuse services are not subject to either state or local Kansas sales tax. These services are not taxable whether they are provided to a business or to a residence.

Electricity, water, natural gas, and other fuel that are provided to residential customers for noncommercial use are subject to local sales tax but not to state sales tax. K.S.A. 2003 Supp. 79-3603(c); K.S.A. 2003 Supp. 79-3606(w); K.S.A. 2003 Supp. 12-189a. Sales of electricity, water, natural gas, and other fuel to businesses are taxable, unless they qualify for exemption as being consumed in production or as becoming an ingredient or component part of the product being manufactured. The Board of Tax Appeals recently extended exemption for electricity holding that the electricity held becomes a component part of chemicals that are manufactured for resale.

The State of Kansas extends an exemption for electricity, water, natural gas, and other fuel that is consumed in production. See K.S.A. 2003 Supp. 79-3606(m); K.S.A. 2003 Supp. 79-3602(dd). The scope of the exemption is further explained in the various exemption certificates cataloged in Publication KS-1520 (9/01). Unlike any other state, Kansas extends this exemption to electricity or gas consumed in cooking equipment used in restaurants, pin-ball machines, pin setting machines, power tools used by mechanics, duplicating equipment located in copy centers, and a variety of similar uses, as well as for industrial manufacturing operations. The scope these exemptions is explained in more detail in the exemption certificates contained in Publication KS-1520 (9/01).

To request a refund on utilities, you must complete the appropriate exemption certificate and provide it to the utility provider. This could be a ST-28B, if the utilities are furnished though one meter, or a consumed-in-production exemption, ST-28C, if only exempt electricity is furnished thought one meter. Non-utility refund request should be submitted to the department using a ST-21, "Instruction for sales and use tax refund application." (Copy enclosed). If you need to discuss any additional questions about tax refunds or exemptions that you might have please call toll-free 877-526-7738 between 7:00a.m. and 5:30 p.m., Monday through Friday.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosure

Date Composed: 03/25/2004 Date Modified: 03/26/2004

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