Are the oxygen, acetylene, and de-ionized water resin a tool maker uses in production exempt from Kansas sales tax?

Plain-English summary

A company that manufactures tools for resale asked whether two categories of supplies it uses in production are exempt from Kansas sales tax.

The production process. In making certain tools, "carbide is silver soldered to steel," a process that uses oxygen and acetylene. The company also runs an electrical discharge machine that cuts stock to form tools; during cutting, "parts are submerged in a tank containing de-ionized water and regeneration resin," and "[e]very three months, the tank resins must be changed."

Oxygen and acetylene are exempt. The Department ruled that "[o]xygen and acetylene used in the manner described in your letter would be consumed in production and would exempt from Kansas retailers' sales tax per K.S.A. 79-3606(n)."

The de-ionized water regeneration resin is exempt. Likewise, "[t]he de-ionized water regeneration resin used in the manner described in your letter would be consumed in production and would exempt from Kansas retailers' sales tax per K.S.A. 79-3606(n)."

Bottom line: consumable items that are used up in an actual manufacturing process — here, the gases used to solder and the resin used in the cutting machine — qualify for the Kansas "consumed in production" exemption under K.S.A. 79-3606(n).

What this means for you

The "consumed in production" exemption covers used-up inputs

Kansas exempts tangible personal property that is consumed in the production, manufacture, or processing of an article of tangible personal property intended for sale. Gases, chemicals, and similar supplies that are used up in the process — rather than becoming part of the finished tool — can qualify.

It applies whether or not the item ends up in the final product

The oxygen and acetylene are burned off during soldering and the resin is spent and replaced every three months; none of them stays in the finished tool. They still qualify because they are consumed in the production process itself.

Buy these items with an exemption certificate

Because the purchases are exempt as consumed-in-production items, a manufacturer generally buys them tax-free by giving the supplier the appropriate Kansas exemption certificate rather than paying tax and later seeking a refund.

Document how each item is used

The Department based its conclusion on the specific way each item was used "in the manner described in your letter." A manufacturer relying on this exemption should be able to show that the item is actually consumed in producing property for sale.

Common questions

Are welding and soldering gases exempt in Kansas?
When oxygen and acetylene are consumed in a production process — here, silver-soldering carbide to steel to make tools for sale — the Department treated them as consumed in production and exempt under K.S.A. 79-3606(n).

What about chemicals or resins used in a cutting machine?
The de-ionized water regeneration resin used in the company's electrical discharge machine was also ruled consumed in production and exempt under the same statute.

Does the item have to become part of the finished product?
No. These items are used up during production and do not remain in the finished tool, yet they still qualified as consumed in production.

Which statute is this?
The exemption is K.S.A. 79-3606(n), the Kansas sales tax exemption for property consumed in production.

Citations and references

• K.S.A. 79-3606(n) — exempts tangible personal property consumed in the production of articles intended for sale; the Department applied it to both the oxygen/acetylene used to silver-solder and the de-ionized water regeneration resin used in the electrical discharge machine.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued September 11, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-130

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 11, 1998

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Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated August 14, 1998. This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59.

You stated in your letter that your company manufactures tools for the purpose of resale. In the process of making certain tools carbide is silver soldered to steel. You asked if there is a sales tax exemption for the oxygen and acetylene that is used to silver solder.

Your company has a electrical discharge machine. This machine is used to cut stock to form tools. During the cutting process, parts are submerged in a tank containing de-ionized water and regeneration resin. Every three months, the tank resins must be changed.

It is the opinion of the Kansas Department Revenue:

Oxygen and acetylene used in the manner described in your letter would be consumed in production and would exempt from Kansas retailers’ sales tax per K.S.A. 79-3606(n).

The de-ionized water regeneration resin used in the manner described in your letter would be consumed in production and would exempt from Kansas retailers’ sales tax per K.S.A. 79-3606(n).

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially effects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 09/11/1998 Date Modified: 10/10/2001

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