Is the rental of construction equipment to a contractor installing manufacturing machinery exempt from Kansas sales or use tax?

Plain-English summary

A party that rents construction equipment to a contractor asked whether that rental is exempt from Kansas sales or compensating (use) tax. The contractor was using the rented equipment to install a special foundation for the installation of manufacturing machinery. The Department's answer is no — the rental is taxable.

The reasoning. Kansas law does not exempt the purchase or rental of construction equipment by a contractor for the purpose of installing manufacturing machinery. The Department pointed to Notice 00-08, which explains the exemptions for the purchase and installation of manufacturing machinery — but those exemptions cover the machinery itself and its installation, not the separate construction equipment a contractor rents to build a foundation for that machinery.

Bottom line: even though the end goal is installing exempt manufacturing machinery, the construction equipment the contractor rents to do the foundation work is a different thing, and its rental is subject to Kansas sales or use tax.

What this means for you

Equipment-rental businesses

Renting construction equipment to a contractor is a taxable transaction. The fact that the contractor's ultimate project involves exempt manufacturing machinery does not make the equipment rental exempt — collect Kansas sales or use tax on the rental.

Contractors

Don't expect the manufacturing-machinery exemption to flow through to the tools and equipment you rent to do the job. The exemption addresses the machinery and its installation; your rented construction equipment (and the tools you buy or rent to perform the work) is taxable to you.

Manufacturers

Your manufacturing machinery and its installation can qualify for exemption (see Notice 00-08), but the contractor's equipment costs — including rentals — sit outside that exemption and are taxable, which may be reflected in what the contractor charges you.

Common questions

Q: Is renting construction equipment to a contractor taxable in Kansas?
A: Yes. The Department advised that Kansas law does not exempt the purchase or rental of construction equipment by a contractor, even when it is used to install manufacturing machinery.

Q: The equipment is used to install exempt manufacturing machinery — doesn't that make it exempt?
A: No. The manufacturing-machinery exemptions cover the machinery and its installation, not the separate construction equipment a contractor rents to build the foundation.

Q: What tax applies — sales or use tax?
A: Either can apply depending on the transaction; the Department said the rental is subject to Kansas sales or compensating (use) tax.

Citations and references

• Notice 00-08 — Department notice explaining the exemptions for the purchase and installation of manufacturing machinery; it does not extend to a contractor's rented construction equipment.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-032

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

April 9, 2002

X
XXXXXXXXXXX
XXXXX

Dear XXXXXXXXX:

I have been asked to respond to your letter dated April 8, 2002. You ask whether the rental of construction equipment to a contractor is exempt from Kansas sales or compensating tax. The contractor is utilizing the equipment to install a special foundation for the installation of manufacturing machinery.

The answer to your question is no. Kansas law does not exempt the purchase or rental of construction equipment by a contractor for the purpose of installing manufacturing machinery.

I enclosed notice 00-08, that explains the exemptions for the purchase and installation of manufacturing machinery.

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

MDC

Date Composed: 04/16/2002 Date Modified: 04/16/2002

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