How could a Kansas public water supply system elect to pay the Clean Drinking Water Fee and become exempt from sales tax on its purchases?

Plain-English summary

Kansas imposes a Clean Drinking Water Fee of $.03 per 1,000 gallons of water sold at retail (in addition to the Water Protection Fee of $.032 per 1,000 gallons). A public water supply system that had opted out of the fee could, effective January 1, 2005, make an irrevocable election to begin paying it under 2004 Senate Bill 147, Section 11 (amending K.S.A. 82a-2101).

The benefit: once a system elects to pay the fee, its direct and indirect purchases of property and services used in the district's construction, operation, or maintenance become exempt from Kansas sales and compensating use tax (K.S.A. 79-3606(s)).

Key conditions:

• The system files an IRREVOCABLE ELECTION NOTICE, which the Department must receive at least 30 days before the first day of the quarter it elects to start.
• The election is irrevocable -- the system cannot later opt back out.
• The system cannot bill customers for the fee; it must pay the fee itself, and reports it on Form WP-1 with the Water Protection Fee.
• Sales tax is still due on the retail sale of water (local tax only for residential or agricultural use; full rate otherwise, unless the customer provides an exemption certificate).

What this means for you

If you run a public water supply system that opted out of the Clean Drinking Water Fee, this let you switch to paying it -- trading a small per-gallon fee for a sales/use tax exemption on your operating and construction purchases. The choice is permanent, has a 30-day-before-the-quarter filing rule, and does not let you pass the fee on to customers. Check current fee rates and rules before relying on these 2004 figures.

Common questions

Q: What did the election let a water system do?
A: Begin paying the Clean Drinking Water Fee (if it had opted out) and, in exchange, buy its construction/operation/maintenance property and services exempt from Kansas sales and use tax under K.S.A. 79-3606(s).

Q: Is the election reversible?
A: No. The election to pay the Clean Drinking Water Fee is irrevocable; the system cannot later opt out.

Q: What is the fee, and can it be billed to customers?
A: $.03 per 1,000 gallons sold at retail, in addition to the Water Protection Fee. The system must pay it and cannot bill customers for it; it is reported on Form WP-1.

Q: Is the sale of water still taxable?
A: Yes. Sales tax is still due on retail water sales -- local tax only for residential or agricultural use, and the full rate otherwise unless the customer gives an exemption certificate.

Citations and references

• K.S.A. 82a-2101 -- clean drinking water fee, opt-out, and January 1, 2005 re-election.
• 2004 Senate Bill 147, Section 11 -- allowed opted-out systems to elect to pay.
• K.S.A. 79-3606(s) -- sales/use tax exemption for an electing system's purchases.
• Form WP-1 (fee reporting), referenced in the notice.

Subject

Clean Drinking Water Fee - Election Available

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 04-08

Original ruling text

Notice
Notice Number: 04-08
Tax Type: Clean Drinking Water Fee
Brief Description: Clean Drinking Water Fee - Election Available
Keywords:
Approval Date: 08/13/2004

Body:
Kansas Department of Revenue

                                       August 13, 2004


                           NOTICE 04-08
             Clean Drinking Water Fee – Election Available

Effective January 1, 2005 those public water supply systems that previously opted out of paying the
Clean Drinking Water Fee may now elect to begin paying the Clean Drinking Water Fee. By paying
the Clean Drinking Water Fee, a public water supply system is exempt from paying Kansas
Retailers’ Sales or Compensating Use Tax on their purchases pursuant to 2004 Senate Bill 147,
Section 11.

Public water supply systems that wish to elect to begin paying the Clean Drinking Water Fee must
complete the enclosed IRREVOCABLE ELECTION NOTICE and return it to the department.

Once the department has received a completed IRREVOCABLE ELECTION NOTICE, it will issue
the public water supply system an exemption letter and certificate for use in making purchases
exempt from sales and compensating taxes.

BEFORE MAKING YOUR ELECTION – PLEASE NOTE THE FOLLOWING
IMPORTANT POINTS:

¨ This legislation is effective January 1, 2005 with no ending date – meaning that public water
supply systems may elect to pay the Clean Drinking Water Fee beginning January 1, 2005 or
anytime thereafter. However, the department will require that a public water supply system begin
paying the fee on the first day of a calendar quarter following such election. Furthermore, the
Department must receive the IRREVOCABLE ELECTION NOTICE at least 30 days prior to the
first day of the quarter in which the public water supply system elects to begin paying the Clean
Drinking Water Fee.

¨ An election to pay the Clean Drinking Water Fee is an irrevocable election. Once an election to
pay the Clean Drinking Water Fee is made, a public water supply system cannot later opt-out of the
fee.

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¨ The Clean Drinking Water Fee (of $.03 per 1,000 gallons of water sold at retail) is in addition
tothe collection of the Water Protection Fee (of $.032 per 1,000 gallons of water sold at retail).

¨ The Clean Drinking Water Fee is reported on the same form as the Water Protection Fee, Form
WP-1.

¨ A public water supply system cannot bill their customers for the Clean Drinking Water Fee. This
fee must be paid by the public water supply system.

¨ The Clean Drinking Water Fee is in addition to the collection of Kansas Retailers’ Sales tax.
Sales tax is due on the retail sale of water. Local sales tax only (city and/or county sales tax) is due
on the retail sale of water for residential or agricultural use. All other retail sales of water are subject
to sales tax at the full rate (state, city and/or county) unless the public water supply system obtains
an exemption certificate from its customer.

¨ Effective with the first day of the calendar quarter after the public water supply system has elected
to pay the Clean Drinking Water Fee, it may purchase all of its goods and services exempt from
sales or compensating use tax when the purchases consist of “property or services are used in the
construction activities, operation or maintenance of the district” (K.S.A. 79-3606(s)).

¨ 2004 SENATE BILL No. 147, Section 11:

K.S.A. 2003 Supp. 82a-2101 is hereby amended to read as follows: 82a-2101. (a) On and after January 1, 2002,
there is hereby imposed a clean drinking water fee at the rate of $.03 per 1,000 gallons of water sold at retail by
a public water supply system and delivered through mains, lines or pipes. Such fee shall be paid, administered,
enforced and collected in the manner provided for the fee imposed by subsection (a)(1) of K.S.A. 82a-954, and
amendments thereto. The price to the consumer of water sold at retail by any such system shall not include the
amount of such fee.
(b) (1) A public water supply system may elect to opt out of the fee imposed by this section by notifying, before
October 1, 2001, the Kansas water office and the department of revenue of the election to opt out. Except as
provided by subsection (b)(2), such election shall be irrevocable. Such public water supply system shall continue
to pay all applicable sales tax on direct and indirect purchases of tangible personal property and services
purchased by such system.
(2) On and after January 1, 2005, any public water supply system which elected to opt out of the fee imposed
by subsection (a) may elect to collect such fee as provided by subsection (a) and direct and indirect purchases
of tangible personal property and services by such system shall be exempt from sales tax as provided by K.S.A.
79-3606, and amendments thereto. Such election shall be irrevocable.
(c) The director of taxation shall remit to the state treasurer in accordance with the provisions of K.S.A.
75-4215, and amendments thereto, all moneys received or collected from the fee imposed pursuant to this
section. Upon receipt thereof, the state treasurer shall deposit the entire amount in the state treasury and
credit 5/106 to the state highway fund and the remainder to the state general fund.

TAXPAYER ASSISTANCE

If you have any questions about this notice or the Clean Drinking Water Fee, please call our
Miscellaneous Tax section: (785) 368-7045. Address a written inquiry to Customer Relations,
Miscellaneous Tax, Kansas Department of Revenue, 915 SW Harrison, Topeka, KS 66625-5000, or
fax it to (785) 291-3968.

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Additional copies of this notice, forms, publications and other written advice are available from our
web site: www.ksrevenue.org.

                    NOTICE TO KANSAS DEPARTMENT OF REVENUE
            IRREVOCABLE ELECTION TO PAY THE CLEAN DRINKING WATER FEE

The _____ _________
(Name of public water supply system) (Water Protection Fee Registration Number)

______ (Kansas Sales Tax Registration Number)

irrevocably elects pursuant to 2004 Senate Bill 147, Section 11 to pay the Clean Drinking Water Fee
on retail sales of water beginning
January 1; April 1; July 1; or October 1 (circle one) of ______ (enter year).

By making said election, the public water supply system understands that, as of the date circled
above, it will be exempt from all applicable Kansas Retailers’ Sales or Compensating Use taxes on
its direct and indirect purchases of tangible personal property and services used in the construction
activities, operation or maintenance of the district.

This election shall become effective on the above date only if the Department of Revenue has
received this document at least 30 days prior to such date.

(Signature of Authorized Individual) (Date) (Title)

(Printed Name) (Phone Number)

                                                  MAIL OR FAX TO:

  Kansas Dept. of Revenue, Attn: Misc. Tax, 915 SW Harrison, Topeka, KS 66625-5000

                                                  Fax: 785-291-3968

ASSISTANCE: (785) 368-7045 or (785) 368-8222

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Date Composed: 08/17/2004 Date Modified: 08/18/2004

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