Are engineering, design, fabrication, and installation of control panels for a manufacturer's machinery exempt from Kansas sales tax?

Plain-English summary

A company told the Department that it is "engaged in the engineering, design, fabrication and installation of control panels for machinery and equipment of manufacturing entities" and asked how that work is taxed in Kansas. The Department's answer is that the work — and the related equipment — is exempt, subject to two conditions.

The holding. The Department stated that these "services and related equipment are exempt from Kansas sales and compensating taxes in Kansas when sold to a manufacturing concern and utilized in a manufacture process." So the exemption reaches not just the physical control panels but also the engineering, design, fabrication, and installation services that go with them.

The two conditions do the work. The exemption is not automatic — it depends on who buys and how it is used. Both must be true:

• the panels and services are sold to a manufacturing concern, and
• they are utilized in a manufacturing process.

Sell the same panels to a non-manufacturer, or to a manufacturer for something other than production, and the exemption described here would not apply.

Where to go for the details. The Department enclosed a copy of Notice 00-08, saying it "contains procedures and guidance that should be useful to your company." That notice is the practical roadmap — including the documentation a seller should obtain — for claiming the manufacturing exemption on this kind of equipment and installation.

Bottom line: control panels and the engineering/fabrication/installation work around them ride Kansas's manufacturing exemption when they are sold to a manufacturer and used in production. The exemption follows the buyer and the use, so proper exemption documentation is essential.

What this means for you

Fabricators and installers selling to manufacturers

Your services and the equipment can both be exempt when the customer is a manufacturing concern and the item is used in production. Do not assume installation labor is automatically taxable — here it rode the same exemption as the equipment because it was part of putting production machinery into service.

Get the exemption documentation

Because the exemption turns on the buyer's status and use, you as the seller should obtain and keep the appropriate exemption certificate from the manufacturing customer. Notice 00-08 sets out the procedures; follow it so you can support the exempt treatment if the Department asks.

Non-manufacturing sales are different

The exemption here is tied to manufacturing use. The same control panels sold for a non-production purpose, or to a customer that is not a manufacturer, would not qualify under this ruling — test each sale against the two conditions.

Common questions

Q: Are control panels sold to a manufacturer taxable in Kansas?
A: No, not when they are sold to a manufacturing concern and utilized in a manufacturing process — the Department ruled the equipment is exempt from Kansas sales and compensating taxes in that situation.

Q: Is the engineering, design, and installation labor also exempt?
A: Yes. The Department said the "services and related equipment" are exempt on the same conditions, so the engineering, design, fabrication, and installation ride the same exemption.

Q: What if the buyer is not a manufacturer?
A: The exemption depends on the sale being to a manufacturing concern for use in production. Outside those conditions, this ruling does not make the sale exempt.

Q: How does a seller claim the exemption?
A: The Department enclosed Notice 00-08, which contains the procedures and guidance — including the exemption documentation — for applying the manufacturing exemption.

Citations and references

• Notice 00-08 — Department guidance containing the procedures for applying the manufacturing machinery and equipment exemption to purchases like these; enclosed with the ruling. (The ruling states the exemption in general terms and cites no specific statute section.)

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-124

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 1, 2001

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX

Dear XXXXXXXXX:

The purpose of this letter is to respond to your letter dated October 24, 2001.

Per our telephone conversation it was determined that your company is engaged in the engineering, design, fabrication and installation of control panels for machinery and equipment of manufacturing entities. Those services and related equipment are exempt from Kansas sales and compensating taxes in Kansas when sold to a manufacturing concern and utilized in a manufacture process.

I have enclosed a copy of Notice 00-08. This Notice contains procedures and guidance that should be useful to your company.

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 make 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 affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 11/05/2001 Date Modified: 11/05/2001

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