Is diesel exhaust fluid exempt from Kansas sales tax when sold to interstate carriers?

Plain-English summary

A seller asked how Kansas sales tax applies to diesel exhaust fluid (DEF) — the fluid modern diesel engines use to reduce emissions. The Department looked to K.S.A. 79-3606(f), which exempts "tangible personal property purchased by a railroad or public utility for consumption or movement directly and immediately in interstate commerce," and to K.A.R. 92-19-28, which exempts fuels, repair parts, and rolling stock sold to a qualifying interstate motor carrier when used directly and immediately in interstate commerce.

The Department's conclusion: DEF comes within the K.S.A. 79-3606(f) exemption when sold to an interstate common carrier for consumption or movement in interstate commerce, so it is not subject to Kansas sales/use tax in that situation. Otherwise, the sale of DEF is taxable.

What this means for you

Sellers of DEF and fuel-related products

Whether you charge Kansas tax on DEF depends on the buyer and use. A sale to a qualifying interstate common carrier for interstate-commerce use is exempt; a sale to an ordinary customer (or for non-interstate use) is taxable. Obtain the proper exemption documentation before treating a sale as exempt.

Interstate motor carriers

DEF you buy for consumption directly and immediately in interstate commerce can qualify for the same interstate-commerce exemption that applies to your motor fuels and repair parts under K.A.R. 92-19-28.

Common questions

Q: Is diesel exhaust fluid always exempt in Kansas?
A: No. It is exempt only when sold to an interstate common carrier for consumption or movement directly and immediately in interstate commerce; otherwise it is taxable.

Q: What makes the exemption apply?
A: K.S.A. 79-3606(f) exempts property bought by a railroad or public utility for direct, immediate use in interstate commerce, and the Department treated DEF as falling within that exemption for qualifying interstate carriers.

Q: What about a DEF sale to a regular retail customer?
A: That sale is taxable — the interstate-commerce exemption does not reach ordinary buyers.

Q: Does this ruling apply to me?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department reasons.

Citations and references

• K.S.A. 79-3606(f) — exempts tangible personal property purchased by a railroad or public utility for consumption or movement directly and immediately in interstate commerce. The Department held DEF sold to an interstate common carrier for such use falls within this exemption.
• K.A.R. 92-19-28 — details the interstate-commerce exemption for sales to qualifying motor carriers (rolling stock, repair parts, and motor fuels used directly and immediately in interstate commerce, with temporary in-state storage permitted).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2015-002

Original ruling text

Private Letter Ruling

Body:

July 22, 2015

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Dear Ms. TTTTTTT:

We wish to acknowledge receipts of your letter dated July 8, 2015, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(f) exempts from sales tax: "tangible personal property purchased by a railroad or public utility for consumption or movement directly and immediately in interstate commerce. . ."

K. A. R. 92-19-28, states in part: "Sales of tangible personal property or services to any motor carrier engaged in the transportation of persons or property in interstate common-carrier transportation are subject to the Kansas retailers' sales tax in the same manner as are sales to other firms, persons or corporations except as follows:

1) Sales of rolling stock, including busses and trailers to each motor carrier qualifying as a public utility and engaged in either interstate commerce exclusively or interstate commerce and intrastate commerce, and the rolling stock are immediately and directly used in interstate commerce are exempt. The rolling stock may be temporarily stored within the state until it is directly and immediately consumed in interstate commerce. However, charges for labor services rendered to common carriers authorized to engage in interstate commerce commission for the servicing, maintenance, or repair of rolling stock including busses and trailers are taxable.

2) Sales of all repair parts and replacement materials or parts to each motor carrier qualifying as a public utility, engaged in either interstate commerce exclusively or interstate commerce and intrastate commerce, when the repair parts and replacement materials or parts are immediately and directly used in interstate commerce are exempt. The repair parts and replacement materials or parts may be temporarily stored within the state until they are directly or immediately consumed exclusively in interstate commerce.

3) Sales of gasoline, distillate and other motor fuels to each motor carrier qualifying as a public utility, engaged in either interstate commerce exclusively or interstate commerce and intrastate commerce when the gasoline, distillate and other petroleum products are immediately and directly used in interstate commerce are exempt. The gasoline, distillate and other motor fuels may be temporarily stored within the state until it is directly and immediately consumed in interstate commerce."

In closing, it is the opinion of this office that the diesel exhaust fluid would come within the scope of the sales tax exemption in K.S.A. 79-3606(f). Therefore the sale of the respective fluid would not be subject to Kansas sales/use tax(es) when sold to an interstate common carrier for consumption or movement in interstate commerce. Otherwise, the sale of this product is taxable.

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 I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 07/29/2015 Date Modified: 07/29/2015

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