Under Kansas's expanded manufacturing exemption, are the purchase and installation of new production machinery — including the labor and materials to reconfigure the plant to accommodate it — exempt from sales tax?
Apply this to your situation
This page answers the general question as of 2000. Ezel answers yours, under current Kansas tax law, with citations.
Plain-English summary
A manufacturer asked whether buying and installing a new production line — and reconfiguring the plant to fit it — is exempt from Kansas sales tax. The Department ruled every item on the list is exempt under Kansas's expanded manufacturing machinery and equipment exemption.
The exemption. Effective July 1, 2000, K.S.A. 79-3606(kk)(1) exempts "(A) all sales of machinery and equipment used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility, (B) all sales of installation, repair and maintenance services performed on such machinery and equipment; and (C) all sales of repair and replacement parts and accessories for such machinery and equipment." In other words, the exemption reaches not just the machine itself but the labor to install and maintain it and the parts that keep it running.
The three purchases, all held exempt. The Department answered each item "Exempt, pursuant to K.S.A. 79-3606(kk)":
- The wash-and-oven system — an extension of the existing equipment used to manufacture the product. Exempt as production machinery.
- Electrical and mechanical parts and labor required to install the line. Exempt as installation services and parts for exempt machinery.
- The labor and materials for the layout changes needed to accommodate the new equipment — including removing a block wall, creating containment curbs, and installing drain systems and mud traps that will be part of the system. Exempt as well.
Bottom line: the entire project — the new production machinery, the installation parts and labor, and even the construction-type work to prepare the plant to receive the machine (walls, curbs, drains, mud traps that are part of the system) — was exempt because it was all an integral or essential part of the integrated production operation.
What this means for you
Kansas manufacturers and processors
When you add or extend production machinery that is an integral part of your integrated production operation, the machine, its installation labor, and its repair/replacement parts can be purchased exempt under K.S.A. 79-3606(kk). Give your vendors and contractors the appropriate Kansas exemption certificate for the project.
Installation labor and plant-prep work can ride the exemption
This ruling is notable because it extended the exemption past the machine itself to the electrical/mechanical installation and to layout-change work — wall removal, containment curbs, drains, and mud traps — where that work was needed to accommodate and became part of the production system. Kansas installation and construction labor is often taxable or non-deductible, so this treatment depends on the work being tied to the exempt integrated production equipment.
The 2000 expansion matters for timing
The (kk) exemption took effect July 1, 2000, and is broader than the older machinery exemption. For projects and rulings that straddle that date, the effective date can change the answer — this ruling relies expressly on the post-July-1-2000 statute.
Common questions
Q: Is installation labor for production machinery taxable in Kansas?
A: Not for machinery that qualifies under K.S.A. 79-3606(kk). Subpart (B) exempts installation, repair, and maintenance services performed on exempt integrated-production machinery and equipment, which is why the Department held the installation parts and labor exempt here.
Q: Do the walls, curbs, and drains built to accommodate the machine qualify?
A: In this ruling, yes. The Department treated the labor and materials for the layout changes — block-wall removal, containment curbs, drain systems, and mud traps that will be part of the system — as exempt because they were an integral part of accommodating the integrated production equipment.
Q: Which statute controls?
A: K.S.A. 79-3606(kk)(1), the expanded manufacturing machinery and equipment exemption effective July 1, 2000, which covers the equipment (A), installation/repair/maintenance services (B), and repair/replacement parts and accessories (C).
Citations and references
- K.S.A. 79-3606(kk)(1) — effective July 1, 2000, exempts sales of machinery and equipment used as an integral or essential part of an integrated production operation by a manufacturing or processing plant, plus installation/repair/maintenance services on that machinery and repair/replacement parts and accessories. The Department quoted subparts (A), (B), and (C).
- K.S.A. 79-3606(kk) — the Department answered each of the three purchases "Exempt, pursuant to K.S.A. 79-3606(kk)," applying the exemption to the production system, its installation, and the plant-layout changes accommodating it.
Source
- Landing page: Kansas Department of Revenue Policy Information Library
- Original document: P-2000-045
Original ruling text
Private Letter Ruling
Body:
Office of Policy & Research
September 21, 2000
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX
Dear XXXXXXXXXX:
The purpose of this letter is to respond to your letter received May 1, 2000. In it, you request advice on the taxability of the purchase and installation of manufacturing machinery and equipment.
Effective July 1, 2000, K.S.A. 79-3606(kk)(1) exempts (A) all sales of machinery and equipment used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility, (B) all sales of installation, repair and maintenance services performed on such machinery and equipment; and (C) all sales of repair and replacement parts and accessories for such machinery and equipment.
Your letter continues with the following purchases:
1.) The purchase of a wash and oven system, which will be an extension of the existing equipment used in the manufacture of your product.
Answer: Exempt, pursuant to K.S.A. 79-3606(kk).
2.) Electrical and mechanical parts and labor required for installation of the line.
Answer: Exempt, pursuant to K.S.A. 79-3606(kk).
3.) Labor and materials associated with equipment and facility layout changes required to accommodate placement of the new equipment, including removal of block wall, creation of containment curbs, as well as installation of drain systems and mud traps that will be part the system.
Answer: Exempt, pursuant to K.S.A. 79-3606(kk).
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 by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination.
Sincerely,
Mark D. Ciardullo
Tax Specialist
Date Composed: 09/21/2000 Date Modified: 10/11/2001
Table 1
| Ruling Number: | P-2000-045 |
|---|---|
Table 2
| Tax Type: | Kansas Retailers' Sales Tax |
|---|---|
| Brief Description: | Taxability of the purchase and installation of manufacturing machinery and equipment. |
| Keywords: | |
| Approval Date: | 09/21/2000 |
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