Is 'mylar' used and disposed of in molding fiberglass tanks exempt as property consumed in production?

Plain-English summary

A manufacturer that makes fiberglass tanks for resale asked whether the "mylar" it uses in production is exempt from sales tax as property "consumed in production." The mylar is placed on the mandrel (the mold form) to keep the fiberglass from sticking to it. When a tank is finished and removed from the mold, the mylar is removed and disposed of — it is not reusable.

The exemption tested. Two statutes work together:

• K.S.A. 79-3606(n) exempts sales of tangible personal property that is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property for ultimate sale at retail within or outside Kansas.
• K.S.A. 79-3602(m) defines "property which is consumed" as tangible personal property that is essential or necessary to, and used in the actual process of and consumed, depleted, or dissipated within one year in (among other things) the production or manufacture of tangible personal property for sale in the regular course of business, and which is not reusable for that purpose.

The Department's conclusion. In the Department's opinion, the mylar used and consumed in the manner described — applied to the mandrel and then discarded after each tank — is consumed in the production of tangible personal property for resale and is therefore exempt from Kansas retailers' sales tax and Kansas consumers' compensating (use) tax. To buy it exempt, the manufacturer should issue its supplier exemption certificate ST-28C.

What this means for you

Manufacturers buying process consumables

Items that are used up in your production process and are not reusable — release films, mold-prep materials, and similar single-use process aids — can qualify for the Kansas "consumed in production" exemption under K.S.A. 79-3606(n), so long as your end product is made for resale. The mylar release film here is a textbook example: essential to the molding process, consumed each cycle, and discarded.

Use the ST-28C certificate

To purchase the exempt item without tax, give your supplier a completed ST-28C ("Consumed in Production" exemption certificate). That documents the exemption for both you and the seller.

The key tests: essential, used-up, not reusable

The exemption hinges on the statutory definition — the property must be essential/necessary to the actual production process and consumed, depleted, or dissipated within one year and not reusable. A durable item that survives many production cycles (a reusable mold or tool) would be analyzed differently; the mylar qualifies precisely because it is thrown away after each tank.

Common questions

Q: Is the mylar exempt from Kansas sales tax?
A: In the Department's opinion, yes. Mylar placed on the mandrel and discarded after each tank is consumed in production of property for resale and is exempt from sales and use tax under K.S.A. 79-3606(n) and 79-3602(m).

Q: What makes it "consumed in production"?
A: It is essential to the actual manufacturing process, is used up and discarded within the production cycle, and is not reusable — matching the definition in K.S.A. 79-3602(m).

Q: How do we buy it exempt?
A: Issue your supplier the ST-28C exemption certificate when purchasing the mylar.

Q: Does the exemption also cover use tax?
A: Yes. The Department stated the item is exempt from both Kansas retailers' sales tax and Kansas consumers' compensating (use) tax.

Citations and references

• K.S.A. 79-3606(n) — exempts tangible personal property consumed in the production or manufacture of tangible personal property for ultimate sale at retail.
• K.S.A. 79-3602(m) — defines "property which is consumed" as property essential to and used in the actual production process, consumed or dissipated within one year, and not reusable.
• ST-28C — the "consumed in production" exemption certificate the buyer issues to the supplier.
• 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-2002-077

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 23, 2002

XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX

Dear Sirs:

The purpose of this letter is to respond to XXXXXXXXXXX letter dated September 12, 2002.

The letter states:

On behalf of our client XXXXXXXXX., I am requesting a private letter ruling to determine if “mylar” used in the manufacturing of fiberglass tanks is exempt from sales taxXXXXXXXXXXXXXXXX. manufactures fiberglass tanks for resale. The product “mylar” is used on the mandrel to keep the fiberglass from sticking to the mandrel. When the tank is completed and removed from the mold, the mylar is removed and disposed of. We are inquiring as to whether or not the mylar would fall under the category of exemption from sales tax because the product is “consumed in production” of tangible personal property. Please respond to XXXXXXXXXXXXXXXXXXXXXXXXX.

The applicable statutes are K.S.A. 79-3606(n), which provides for tax exemption for sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property. . . for ultimate sale at retail within or without the State of Kansas. In addition, K.S.A. 79-3602(m) “Property which is consumed” means tangible personal property which is essential or necessary to and which is used in the actual process of and consumed, depleted or dissipated within one year in (1) the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, (2) the providing of services, (3) the irrigation of crops, for sale in the regular course of business, or (4) the storage or processing of grain by a public grain warehouse or other grain storage facility, and which is not reusable for such purpose.

It is the opinion of the Kansas Department of Revenue that the item referred to as “mylar” used and consumed in manner described in this letter is consumed in production of tangible personal property for resale and is exempt from Kansas retailers’ sales tax and Kansas consumers compensating (use) tax.

When purchasing this item you should issue to the supplier exemption certificate ST-28C, enclosed.

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: 09/25/2002 Date Modified: 09/30/2002

Table 1

Table 2