Is USDA-required protective apparel (and processing machinery) taxable for a meat-cutting business, or exempt as integrated-production safety equipment?

Plain-English summary

A business that cuts existing slabs and quarters of meat into steaks, hamburger, and similar cuts asked whether its USDA-required protective apparel is taxable. The items were coated gloves, aprons, sleeves, and boots (able to be sanitized) and protective hair nets.

Under K.S.A. 79-3606(kk), purchases of employee apparel are taxable, but the statute has an exception for safety and protective apparel provided by an employer in an integrated production operation. The Department found that this business's operation — cutting and butchering meat — is not an integrated production operation; it is a meat cutting and butchering service, so the business is a retailer, not a manufacturer.

Because a retailer owes sales or use tax as the final consumer of the equipment, fixtures, tools, and other items used in its business:

• the gloves, aprons, sleeves, boots, and hair nets are taxable; and
• the machinery — the packaging machine that wraps cut meat, the machine that makes hamburger patties, and the dicer that cuts chunks of meat — is also taxable, with sales tax due at the time of purchase.

What this means for you

Meat cutters, butcher shops, and similar service businesses

If your operation is a cutting/butchering service rather than an integrated production (manufacturing) operation, you are a retailer and the final consumer of what you use. Your protective apparel and your processing machinery are taxable purchases — even when the apparel is required by USDA rules.

Businesses weighing the integrated-production exemption

The safety-apparel exception applies only within an integrated production operation. Being a retailer/service provider, not a manufacturer, puts your safety apparel and equipment outside that exception.

Common questions

Q: Is USDA-required protective apparel exempt in Kansas?
A: Not for a meat cutting/butchering service. It is a retailer, not an integrated production operation, so the apparel is taxable even though USDA requires it.

Q: Is the processing machinery taxable too?
A: Yes. The packaging machine, patty machine, and dicer are used in the retail business, and the business owes tax on them as the final consumer at the time of purchase.

Citations and references

• K.S.A. 79-3606(kk) — makes purchases of employee apparel taxable, with an exception for safety and protective apparel provided by an employer in an integrated production operation; the Department found the meat-cutting service is not such an operation, so the exception does not apply.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2008-008

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 3, 2008

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Dear XXXXXXXXXX:

We wish to acknowledge receipt of your inquiry of October 28, 2008 regarding the application of Kansas Retailers’ Sales tax. You inquired regarding items of protective apparel.

Several of the apparel items listed in your inquiry were identified as having a coating which allows for the item to be sanitized or washed with solutions to remove bacteria or unwanted pathogens. The coated apparel items were listed as gloves, aprons, sleeves worn over cotton garments and boots. Also identified were protective hair nets worn to avoid contamination that could occur if something fell off an employee. You indicated these items were required by USDA regulations.

K.S.A. 79-3606(kk)(j) provides that purchases of employee apparel are taxable. However, the statute contains an exception for safety and protective apparel when provided by an employer in an integrated production operation. Your business has been defined as cutting existing slabs or quarters of meat into items such as steaks, hamburger etc. It is the Department’s position that the operation described is not an integrated production operation but rather a meat cutting and butchering service. As such the operation would be considered as a retailer rather than a manufacturer.

Retail businesses owe sales and/or use tax as the final consumers of the equipment, fixture, tools, and other items used in the operation of their business. Therefore it is the opinion of the Department of Revenue that the gloves, aprons, sleeves, boots and hair nets utilized by your employees would be taxable.

A subsequent question was also raised concerning machinery used in the business. The machinery identified was a packaging machine used to wrap meat after it is cut up, a machine that makes hamburger patties and a dicer machine that cuts up chunks of meat. These machines are all used in the operation of your retail business and sales tax should be paid on them at the time of purchase.

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,

Jack Smith
Policy and Research

cc: XXXXXXXXX
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Date Composed: 11/05/2008 Date Modified: 11/05/2008

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