How does Kansas sales tax apply to equipment, replacement parts, and electricity sales for a Kansas wind farm?

Plain-English summary

A wind-farm developer asked several follow-up questions about how Kansas sales tax applies to equipment and materials used to build a wind farm. The Department attached and adopted its earlier 2006 ruling P-2006-013 (which identifies which wind-farm equipment is exempt under K.S.A. 79-3606(kk) and which is taxable) and answered the new questions:

• Replacement parts to keep the system running follow the tax status of the underlying equipment. If the equipment purchase is exempt under (kk), its parts are exempt; if the equipment is taxable, its parts are taxable. The Department stressed the (kk) exemption is not a "carte blanche" exemption — some wind-farm purchases are taxable. Repair services are treated the same way as parts.
• Electricity sold at wholesale — i.e., sales for resale — is exempt if the wind farm obtains a resale exemption certificate from the buyer (for example, a utility such as Westar Energy buying the power). But if the wind farm sells electricity to a final user (say, a nearby manufacturing plant), it must register as a retailer and collect sales tax on those sales, like any other utility selling to end users.
• Certificates/forms: the wind farm secures a resale exemption certificate (ST-28A) from the utilities that buy its electricity, and issues an Integrated Production Machinery & Equipment certificate (ST-201) to sellers when buying exempt equipment. Department Publication KS-1520 catalogs the certificates.
• On the taxpayer's list of items, the Department said the equipment and materials under the first six bullet points are exempt, and the last three are addressed by the incorporated P-2006-013.

What this means for you

Wind-farm developers and operators

Don't treat the (kk) exemption as covering everything you buy. Each piece of equipment is exempt or taxable on its own terms, and its replacement parts and repairs inherit that same status. Use the ST-201 integrated-production certificate for exempt equipment purchases.

Wind farms selling their power

Wholesale sales for resale are exempt if you get a resale exemption certificate (ST-28A) from the buyer. If you sell power directly to an end user, you must register and collect sales tax like any other utility.

Common questions

Q: Are replacement parts for wind-farm equipment exempt?
A: They follow the equipment. Parts and repairs for equipment that was exempt under K.S.A. 79-3606(kk) are exempt; parts and repairs for taxable equipment are taxable. The (kk) exemption is not a blanket exemption.

Q: Does the wind farm charge sales tax on the electricity it sells?
A: Not on wholesale sales for resale, if it gets a resale exemption certificate from the buyer. Sales to a final user are taxable, and the wind farm must register and collect the tax.

Q: Which certificates are involved?
A: A resale exemption certificate (ST-28A) from utilities buying the power, and an Integrated Production Machinery & Equipment certificate (ST-201) issued to sellers for exempt equipment; Publication KS-1520 catalogs them.

Citations and references

• K.S.A. 79-3606(kk) — the integrated production machinery and equipment exemption; identifies which wind-farm equipment purchases are exempt and which are taxable (not a blanket exemption). Replacement parts and repair services take the same status as the equipment they serve.
• Sales for resale (wholesale) exemption — wholesale electricity sales are exempt when the seller secures a resale exemption certificate from the buyer; sales to a final user are taxable and require the seller to register and collect tax.
• Prior ruling P-2006-013 — attached, adopted, and incorporated as part of this ruling; it details which wind-farm equipment and materials are exempt or taxable.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2008-012

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 18, 2008

XXXXX
XXXXX
XXXXX

RE: Your letter dated September 19, 2008

Dear XXXXX:

Thank you for your recent letter. You ask how Kansas sales tax applies to equipment and materials purchased and used to construct a wind farm in Kansas. I have attached a copy of P-2006-013, which is a private letter ruling that the department issued in 2006. The advice given is up-to-date and is adopted as part of this ruling. You can rely on the advice given in this 2006 letter.

You ask several questions that do not appear to be directly addressed in P-2006-013. I will restate these questions and then answer them.

Will replacement parts purchased to keep the wind energy system operational be exempt?

ANSWER: P-2006-013 identifies the equipment purchases that are exempt under K.S.A. 79-3606(kk) and the equipment purchases that are not exempt. The second full paragraph on the second page states that the exemption for purchases by a wind farms is not a carte blache exemption and identifies various purchases that are taxable.

Parts for equipment would be taxed or exempted according to whether or not the initial purchase of the equipment was taxed or exempted under (kk). That is, if P-2006-016 states that the purchase of equipment is exempt under (kk), the purchase of parts for that equipment are also exempt. If P-2006-016 indicates that purchase of equipment is taxable, purchase of parts for that equipment are also taxable. Kansas sales tax is imposed on repair services, whether the repair is done to tangible personal property or to real property. Repair services would be taxed or exempted in the same way as parts, except as discussed in the carte blanche paragraph of P-2006-013.

Would the wind farms be exempt from charging sales tax on the electricity that is produced and sold at wholesale?

ANSWER: Yes. The Kansas sales tax act refers to "wholesale" sales as "sales for resale." These are exempt if the seller secures a resale exemption certificate (Form ST-21) from the buyer. In your case, the wind farm should secure a completed certificate from any utility, such as Westar Energy, that is buying electricity from the wind farm. If sales are made to a final user, such as a nearby manufacturing plant, the wind farm would be required to register as a retailer and collect sales tax on sales to the manufacturer in the same way as any other utility that sells gas or electricity to end users.

What are to KDOR form numbers of the required certificates that need to be completed?

ANSWER: Department Publication KS-1520 catalogs all of the department's exemption certificates. The first fifteen pages of the Publication discuss the various responsibilities that attach to issuing such certificates as well as different situations that require their use. I recommend downloading Publication KS-1520 from our web site, www.ksrevenue.org. The Table of Contents on page 2 lists the different certificates. You will need to secure the ST-28A -- Resale exemption certificate from the utility companies that buy the electricity, and issue the ST-201, Integrated Production Machinery & Equipment Certificate, to the seller when you buy the equipment that is exempt.

The second page of your letter lists equipment and materials that are used at a wind farm. The equipment and materials listed under the first six bullet points are exempt. P-2006-013 discusses how sales tax applies to purchases of the materials and supplies that are listed under the last three bullet points. P-2006-013 should be considered a part of this private letter ruling if it is ever reviewed by the department.

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 effects this private letter ruling. If you have any additional questions, please call me at 785-296-3081.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Attachment

Date Composed: 12/23/2008 Date Modified: 12/23/2008

Table 1

Table 2