Are public wholesale water supply districts exempt from Kansas sales tax on their purchases?

Plain-English summary

The Department addressed whether public wholesale water supply districts (PWWSDs) — organized and operating under K.S.A. 19-3545 — are exempt from Kansas sales tax on their purchases. The answer turns on a tax that took effect in 2002 and an "opt-out" election that had to be made in 2001.

The Clean Drinking Water Fee. Under K.S.A. 2001 Supp. 82a-2101, a Clean Water Drinking Fee of 3 cents per 1,000 gallons applies to water sold at retail by a public water supply system and delivered through mains, lines, or pipes. The statute gave public water supply systems an irrevocable right to "opt out" of the fee, but only if that election was made in writing before October 1, 2001.

How the exemption is tied to the fee. The two provisions work as a package. If a system timely opted out of the fee, its purchases remain subject to sales tax at the rates in effect before January 1, 2002 (i.e., no exemption). If a system did not opt out, then its retail water sales are subject to the Clean Drinking Water Fee and the system qualifies for the sales tax exemption on its purchases, which took effect on and after January 1, 2002.

Applied to these districts. The requester indicated that the PWWSDs it represents (1) had not opted out of the fee and (2) make only wholesale water sales — selling to other public water suppliers, not to end users. The Department indicated that PWWSDs appear to fit the definition of "public water supply system" at K.S.A. 65-162a, and that a district that makes only wholesale sales and has not opted out would have its qualifying purchases exempt under K.S.A. 2001 Supp. 79-3603(s) (effective January 1, 2002), assuming it is organized or operating under K.S.A. 19-3545. (The request framed the exemption under K.S.A. 2001 Supp. 79-3606(s); the Department's answer cites the exemption effective January 1, 2002.) The Department also indicated that a district selling water only at wholesale to other suppliers is not subject to the Clean Drinking Water Fee, because that fee is imposed on water sold at retail.

What this means for you

Public wholesale water supply districts

If your district is organized or operating under K.S.A. 19-3545 and did not opt out of the Clean Drinking Water Fee, your qualifying purchases can be exempt from Kansas sales tax under the exemption effective January 1, 2002. Because you sell water only at wholesale, you are not the one collecting the retail Clean Drinking Water Fee — but not opting out is what preserves the purchase exemption.

Systems that opted out

A public water supply system that timely opted out of the fee before October 1, 2001 did not gain the purchase exemption — its purchases stay taxable at the pre-2002 treatment. The opt-out was irrevocable, so this is a fixed consequence of that 2001 election.

Confirm the current statute

This ruling interprets the 2001/2002 versions of the statutes as they stood at the transition to the new fee-and-exemption regime. The specific subsection citations and the fee mechanics may have changed since 2002; confirm the current law before relying on the exact statute numbers.

Common questions

Q: Is a public wholesale water supply district exempt from sales tax on its purchases?
A: Generally yes, if it is organized or operating under K.S.A. 19-3545 and did not opt out of the Clean Drinking Water Fee — its qualifying purchases are exempt under the exemption effective January 1, 2002.

Q: What is the "opt-out" and why does it matter?
A: Public water supply systems could irrevocably elect out of the Clean Drinking Water Fee in writing before October 1, 2001. Opting out kept a system on pre-2002 sales tax (no purchase exemption); not opting out means it pays the fee on retail water sales and gets the purchase exemption.

Q: Does the district owe the Clean Drinking Water Fee?
A: The Department indicated that a district selling water only at wholesale to other suppliers is not subject to the fee, which is imposed on water sold at retail.

Q: Does this ruling apply to my water district?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others. Confirm the current statutes, since these turn on 2001/2002 provisions.

Citations and references

• K.S.A. 19-3545 — organization and operation of public wholesale water supply districts.
• K.S.A. 2001 Supp. 82a-2101 — Clean Water Drinking Fee (3 cents per 1,000 gallons on retail water sales) and the pre-October 1, 2001 irrevocable opt-out election.
• K.S.A. 2001 Supp. 79-3603(s) — sales tax exemption on the system's purchases, effective on and after January 1, 2002 (the request framed the exemption under K.S.A. 2001 Supp. 79-3606(s)).
• K.S.A. 65-162a — definition of "public water supply system."
• 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-2002-082

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 2, 2002

XXXX
XXXX
XXXX

Re: Ruling Request on Applicability Sales Tax Exemption to Public Wholesale Water Supply Districts

Dear XXXX:

This responds to your correspondence dated September 5, 2002 on behalf of XXXX, in which you request a ruling as to whether public wholesale water supply districts (PWWSD’s) organized and operating under K.S.A. 19-3545 are exempt from sales tax on their purchases, pursuant to K.S.A. 2001 Supp. 79-3606(s).

K.S.A. 2001 Supp. 82a-2101 imposes a Clean Water Drinking Fee of 3 cents per 1,000 gallons of water sold at retail by a public water supply system and delivered through mains, lines or pipes. That statute also gave public water supply systems an irrevocable right to “opt out” from paying the fee, if such “opt out” was exercised in writing before October 1, 2001. If a public water supply system has timely “opted out” from the fee, then its purchases remain subject to all applicable sales taxes in effect prior to January 1, 2002. If a public water supply system has not “opted out” from paying the fee, then its retail sales of water are subject to the Clean Drinking Water Fee, and the public water supply system qualifies for the sales tax exemption on its purchases, which went into effect on and after January 1, 2002.

You indicate that to your knowledge, none of the PWWSD’s you represent have “opted out” from paying the Clean Drinking Water Fee, imposed pursuant to K.S.A. 2001 Supp. 82a-2101. You also indicate that none of the PWWSD’s you represent make any retail sales of water, selling only at wholesale to other public water suppliers.

It appears that PWWSD’s fit within the definition of “public water supply system” at K.S.A. 65-162a. However, if the PWWSD makes only wholesale water sales and has not “opted out” from paying the Clean Drinking Water Fee, then the PWWSD’s qualifying purchases would be subject to the sales tax exemption at K.S.A. 2001 Supp. 79-3603(s) (effective on and after January 1, 2002), assuming the PWWSD is organized or operating under K.S.A. 19-3545. It also appears that so long as the PWWSD is selling water only at wholesale to other suppliers, the PWWSD is not subject to the Clean Drinking Water Fee.

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 affects this private letter ruling.

Very truly yours,

Richard L. Cram

Date Composed: 10/09/2002 Date Modified: 10/17/2002

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