What surface mining machinery and equipment did Kansas exempt from sales tax in 2014?

Plain-English summary

Kansas Notice 14-16 (dated June 2014) announces a new sales tax exemption for surface mining machinery and equipment.

The exemption. 2014 House Bill 2378 added new subsection (4)(F) to K.S.A. 2013 Supp. 79-3606(kk)(4), effective July 1, 2014. It deems exempt all machinery and equipment used in surface mining activities as described in K.S.A. 49-601 et seq., beginning from the time a reclamation plan is filed to the acceptance of the completed final site reclamation -- even if the equipment would not otherwise qualify as integrated-production machinery and equipment.

What "surface mining" covers. K.S.A. 49-603(j) defines surface mining broadly: mining material (except coal, oil and gas) by removing the overburden above natural deposits, mining directly from exposed deposits, or the surface effects of underground mining, plus dredge operations outside the high banks of streams and rivers. Per the notice, this reaches strip/open-pit/contour mining, quarrying, mining exposed surface deposits, reclamation to correct the surface effects of underground mining (not involving coal/oil/gas), and qualifying dredging. It does not cover underground mining, prospecting/exploration, "borehole mining" for oil or gas, coal/oil/gas severance, or remediating petroleum/chemical/brine-impacted soil.

Who qualifies. The exemption is limited to operators who engage in surface mining and are licensed by the Kansas Conservation Commission (K.S.A. 49-603, 49-605). Examples include concrete manufacturers that mine limestone, qualifying sand or gravel retailers, and ready-mix concrete businesses operating qualifying sand or gravel pits.

How to claim. Use the revised Integrated Production Machinery and Equipment Exemption Certificate, ST-201 (Rev. 6/14), checking the first two boxes on line 4 to claim exemption for both integrated production equipment and surface-mining equipment, beginning July 1, 2014.

Date note. The notice is dated only "June 2014" with no specific day printed; the issued date shown here reflects that month.

What this means for you

Surface mining operators (quarries, sand and gravel, limestone)

• If you are licensed by the Kansas Conservation Commission, your surface-mining machinery and equipment -- from reclamation-plan filing to final reclamation acceptance -- can be bought exempt from sales tax using Certificate ST-201.

Tax preparers and purchasing staff

• Confirm the operator's Conservation Commission license and that the activity fits the K.S.A. 49-603(j) definition; underground mining, prospecting and coal/oil/gas severance do not qualify.

Common questions

What equipment is exempt? Machinery and equipment used in licensed surface mining, from filing a reclamation plan to acceptance of final reclamation.

Who can claim it? Operators licensed by the Kansas Conservation Commission engaged in surface mining as defined in K.S.A. 49-603(j).

What is excluded? Underground mining, prospecting/exploration, borehole mining for oil or gas, and coal/oil/gas severance.

Which certificate is used? The revised ST-201 (Rev. 6/14), Integrated Production Machinery and Equipment Exemption Certificate.

Citations and references

• K.S.A. 2013 Supp. 79-3606(kk)(4)(F) -- the new surface-mining machinery and equipment exemption.
• K.S.A. 49-601 et seq., 49-603(j), 49-605 -- the surface mining definitions and licensing referenced by the exemption.
• 2014 House Bill 2378 -- the enacting legislation.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 14-16

Original ruling text

Policy & Research Phone: 785-296-3081
915 SW Harrison St FAX: 785-296-7928
Topeka KS 66612-1588 www.ksrevenue.org
Nick Jordan, Secretary Department of Revenue Sam Brownback, Governor
Richard Cram, Director

                                     NOTICE 14-16

            NEW SALES TAX EXEMPTION FOR SURFACE MINING OPERATORS

                                2014 HOUSE BILL 2378

                                      (June 2014)

2014 House Bill 2378 adds machinery and equipment used in surface mining to the various items
that the Kansas legislature has cataloged in K.S.A. 2013 Supp. 79-3606(kk)(4) and deemed to be
exempt. New subsection (4)(F), which becomes law on July 1, 2014, provides:

   (4) The following machinery, equipment and materials shall be deemed to be
   exempt even though it may not otherwise qualify as machinery and equipment
   used as an integral or essential part of an integrated production operation: . . . .

   (F) all machinery and equipment used in surface mining activities as described in
   K.S.A. 49-601 et seq., and amendments thereto, beginning from the time a
   reclamation plan is filed to the acceptance of the completed final site reclamation.

K.S.A. 49-603(j) defines the term "surface mining" for purposes of the new exemption:

       (j)(1) "Surface mining" means the mining of material, except for coal, oil and
   gas, for sale or for processing or for consumption in the regular operation of a
   business by removing the overburden lying above natural deposits and mining
   directly from the natural deposits exposed, or by mining directly from deposits
   lying exposed in their natural state, or the surface effects of underground mining.
   Surface mining shall include dredge operations lying outside the high banks of
   streams and rivers.
       (2) Removal of overburden and mining of limited amounts of any materials
   shall not be considered surface mining when done only for the purpose and to the
   extent necessary to determine the location, quantity or quality of the natural
   deposit, if the materials removed during exploratory excavation or mining are not
   sold, processed for sale or consumed in the regular operation of a business.

The exemption is limited to operators that engage in surface mining and are licensed to do so by
the Kansas Conservation Commission. K.S.A. 49-603(a), (c), and (e); K.S.A. 49-605. Surface-
mining operators include concrete manufacturers that mine limestone, qualifying sand or gravel
retailers, and ready-mix concrete businesses that operate qualifying sand or gravel pits for
consumption or sale.

Mining is done to extract minerals, rock, and other naturally-occurring geological materials from
the earth. Surface mining is a broad category of mining that is commonly understood to involve
the removal of soil and rock --- the overburden--- that overlies a valuable geological deposit so
the deposit can be accessed and removed from the earth. However, K.S.A. 49-603(j) defines
"surface mining" more broadly so that exemption applies to machinery and equipment used in
(1) strip mining, open pit mining, and contour mining operations, (2) quarrying, (3) the mining of
surface deposits that lie exposed in their natural state, (4) reclamation projects undertaken by
mine operators to correct the surface effects of underground mining, provided the mining did not
involve the removal of coal, oil, or gas, and (5) dredging operations that are located outside the
high banks of streams and rivers.

Surface mining does not include underground mining in which the geological deposit is accessed
and removed through shafts or tunnels. The exemption does not apply to equipment used for
prospecting, exploration, or for what is occasionally referred to as "borehole mining" for oil or
gas. The exemption does not apply to equipment used for coal, oil, or gas severance or to
remediate petroleum, chemical, or brine-impacted soil that is commonly found at petroleum
drilling, storage, production, and retail sites.

Surface mining, as defined at K.S.A. 49-603(j), requires the use of heavy equipment. Bulldozers,
power shovels, front-end loaders, scrapers, backhoes, and other types of earthmoving equipment
are used to remove the overburden. The rock and mineral deposits are often severed from their
naturally occurring state by the use of boring equipment that penetrates the deposit to allow
blasting, by the use of bulldozer-mounted rippers, and by hydraulic hammers mounted on power-
shovel booms. In other types of surface mining, power shovels, draglines, and bucket-wheel
excavators are used to remove deposits, such as sand and gravel. Some of this equipment loads
the deposits on conveyor belts or into trucks and trailers for hauling.

The revised Integrated Production Machinery and Equipment Exemption Certificate, ST-201,
(Rev. 6/14) allows licensed surface-mine operators to claim exemption, beginning July 1, 2014,
for purchases of both their surface mining equipment and the integrated production equipment
they use to crush, size, and convey the mineral or rock after it has been severed from the earth.
Licensed surface mining operators should check the first two boxes listed in line 4 of ST-201,
which will allow exemption to be claimed for the:

   Purchase, lease, or rental of the integrated production equipment described in line 1.
   Purchase, lease, or rental of surface-mining equipment, as discussed in Notice 14-16.

                               Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about income tax, please contact:

                           Taxpayer Assistance Center
                          Kansas Department of Revenue
                          915 SW Harrison St., 1st Floor
                             Topeka, KS 66612-1588
                              Phone: 785-368-8222
                               Fax: 785-291-3614