Is the safety equipment an oil-well services company buys for its employees exempt from Kansas sales tax?

Plain-English summary

A company that provides oil-well drilling services (and sells and services drilling equipment) asked whether the safety equipment it buys and gives to its employees is exempt from Kansas sales tax. The gear includes hydrogen sulfide monitors, hard hats, safety glasses, ear plugs, safety lanyards and harnesses, and flame-resistant apparel.

The Department said no — the equipment is taxable. The company must pay or accrue Kansas sales or use tax on all of these purchases. Although the company's services and much of its equipment are used in oil exploration and drilling operations, the safety equipment it buys for employees is not exempt under K.S.A. 79-3606(kk) (the exemption for machinery and equipment used in an integrated production operation). So the safety gear is taxed when the company buys it.

What this means for you

Oilfield services and drilling companies

Personal safety equipment you buy for your crews — monitors, hard hats, PPE, flame-resistant clothing — is taxable to you; it doesn't ride along with the production-machinery exemption. If your supplier doesn't charge sales tax, accrue and remit use tax on these purchases.

Employers buying PPE generally

Don't assume safety gear used in an exempt production activity is itself exempt. The Department treated this employee safety equipment as taxable even though the company's operations were drilling-related.

Common questions

Q: Is safety equipment for oil-well drilling employees exempt in Kansas?
A: No. The Department ruled the company must pay or accrue Kansas sales or use tax on the safety equipment it buys and gives to employees.

Q: Why doesn't the production-equipment exemption apply?
A: K.S.A. 79-3606(kk) exempts machinery and equipment used in an integrated production operation; the Department found the employee safety equipment doesn't qualify.

Q: What if my supplier doesn't charge tax?
A: Then you accrue and remit Kansas use tax on the purchases.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2012-006

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 13, 2012

XXXXX
XXXXX
XXXXX

RE: Your letter received August 20, 2012

Dear XXXX:

Thank you for your letter requesting a private letter ruling. Your company’s website shows it provides oil well drilling services, sells oil exploration and drilling equipment, and services equipment in its shop and at well sites in Kansas. Your website identifies the services and equipment as:

Roustabout services
Backhoe services
Trenching
Polypipe installation
Contract pumper service
Weed spraying
Painting
Power washing
New & used pumping unit sales
Pumping unit reconditioning & servicing
Complete machine shop services
Welding & fabrication
Equipment painting
New & used tubing, casing & rod sales
EMI inspection
Endary & drift
Hydrostatic testing
Threading
Forklift service
Tubing & equipment storage
Crane & winch work
Over the road trucking
Hot shot services
Vacuum trucks

You ask if safety equipment your company buys and gives to employees who perform these services and sell and deliver such equipment are exempt from Kansas sales tax. The safety equipment includes hydrogen sulfide monitors for each employee, hard hats, safety glasses, ear plugs, safety lanyards and harnesses, and flame resistant apparel, among other things. The answer to your question is no, your company is required to pay or accrue Kansas sales or use tax on all of these purchases.

The listed services are performed in oil exploration and drilling operations, at your machine shop, and to control weeds at a well site, among other things. Much of the equipment your company sells and installs also appears to be used in oil exploration and drilling operations. Consequently, the safety equipment your company buys and gives to employees is taxable when your company buys it. The purchases are not exempt from Kansas sales tax under K.S.A. 79-3606(kk).

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.

Sincerely,

Thomas E. Hatten

Date Composed: 09/12/2012 Date Modified: 09/13/2012

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