Are materials and services to repair railroad rolling stock used in interstate commerce exempt from Kansas sales tax?

Plain-English summary

The question was whether Kansas sales tax applies to the repair of railroad rolling stock (freight cars) used in interstate commerce.

The exemption. K.S.A. 79-3606(y) exempts "all sales of materials and services used in repairing, servicing, altering, maintaining, manufacturing, remanufacturing, or modification of railroad rolling stock for use in interstate or foreign commerce under authority of the laws of the United States."

How it applies here. The Department's opinion: "as long as the freight cars are operated by carriers, who possess interstate common carrier authority, and are used in interstate commerce, then the respective purchase of materials or services to repair, alter, maintain, manufacture, remanufacture or modify the freight cars would come within the scope of the sales tax exemption in K.S.A. 79-3606(y)."

Motor fuels are covered too. "[T]he purchase of gasoline, distillate, lubricants and other motor fuels purchased by the common carrier would likewise be exempt from any Kansas sales/use tax."

What is NOT exempt. "[T]he purchase of machinery, equipment and tooling which is not a repair or replacement part for the railroad rolling stock would not qualify for the sales tax exemption in K.S.A. 79-3606(y)."

The use test. The rolling stock "must be used in either interstate commerce exclusively or interstate commerce and intrastate commerce" for the repair materials and services to qualify.

What this means for you

Repair parts and services for interstate freight cars are exempt

If the freight cars are operated by a carrier with interstate common-carrier authority and are used in interstate commerce, the materials and services used to repair, service, alter, maintain, manufacture, remanufacture, or modify them are exempt from Kansas sales tax.

The carrier's motor fuels are exempt

Gasoline, distillate, lubricants, and other motor fuels purchased by the common carrier for this rolling stock are also exempt from Kansas sales/use tax.

Shop machinery, equipment, and tooling are still taxable

The exemption reaches repair and replacement parts and the repair services — not the general machinery, equipment, and tooling used to perform the work. Those remain taxable purchases.

The interstate-use requirement

The rolling stock must be used exclusively in interstate commerce, or in a mix of interstate and intrastate commerce. Purely intrastate rolling stock would not meet the test.

Common questions

Q: Are repair parts for interstate freight cars taxable in Kansas?
A: No. Materials and services to repair, service, alter, maintain, manufacture, remanufacture, or modify railroad rolling stock used in interstate commerce are exempt under K.S.A. 79-3606(y).

Q: What about fuel and lubricants?
A: Gasoline, distillate, lubricants, and other motor fuels the common carrier buys for the rolling stock are also exempt.

Q: Is the exemption unlimited?
A: No. Machinery, equipment, and tooling that is not a repair or replacement part for the rolling stock does not qualify, and the rolling stock must be used in interstate (or interstate-plus-intrastate) commerce.

Citations and references

• K.S.A. 79-3606(y) — exempts all sales of materials and services used in repairing, servicing, altering, maintaining, manufacturing, remanufacturing, or modifying railroad rolling stock for use in interstate or foreign commerce.
• K.A.R. 92-19-59 — the regulation authorizing private letter rulings; this ruling was issued under it and binds the Department only as to the requesting taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-142

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

June 14, 1999

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Dear Mr. TTTTTTT:

We wish to acknowledge receipts of your letter dated May 19, 1999, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(y) exempts from sales tax: "all sales of materials and services used in repairing, servicing, altering, maintaining, manufacturing, remanufacturing, or modification of railroad rolling stock for use in interstate or foreign commerce under authority of the laws of the United States. . .”

It is the opinion of this office that as long as the freight cars are operated by carriers, who possess interstate common carrier authority, and are used in interstate commerce, then the respective purchase of materials or services to repair, alter, maintain, manufacture, remanufacture or modify the freight cars would come within the scope of the sales tax exemption in K.S.A. 79-3606(y). Additionally, the purchase of gasoline, distillate, lubricants and other motor fuels purchased by the common carrier would likewise be exempt from any Kansas sales/use tax. However, the purchase of machinery, equipment and tooling which is not a repair or replacement part for the railroad rolling stock would not qualify for the sales tax exemption in K.S.A. 79-3606(y).

The railroad rolling stock must be used in either interstate commerce exclusively or interstate commerce and intrastate commerce in order for the purchase of materials and services used in repairing, servicing, altering, maintaining, manufacturing, remanufacturing, or modification of said railroad rolling stock.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It 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 ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 07/07/1999 Date Modified: 10/11/2001

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