Is motor fuel burned off-highway in land-improvement and construction work subject to Kansas sales or use tax, and when is it exempt?

Plain-English summary

The Department cleared up a common misunderstanding among contractors, farmers, and ranchers: when is motor fuel used off the highway subject to Kansas tax?

The rule: motor fuels — gasoline, gasohol, diesel, and L-P gas — consumed off-highway in motor vehicles or excavation and construction equipment to build farm ponds, terraces, waterways, or to do grading, landscaping, and building-site preparation, are subject to Kansas retailers' sales tax or consumers' compensating use tax. When this notice issued in 1980, that rate was three percent (the archived copy notes a later increase to 4.9% in 1992). This applied even to fuel that is exempt from the motor-fuel tax, or on which the motor-fuel tax was paid but is refundable.

Exempt uses included:

• Fuel consumed in producing or processing agricultural products or irrigating crops for sale at retail — plowing, disking, harrowing, planting or seeding, cultivating, and harvesting. (But not fuel used to build farm ponds, waterways, or terraces.)
• Fuel used on construction projects that qualify under K.S.A. 79-3606(d) and (e) — projects for political subdivisions, nonprofit hospitals, public/private schools and nonprofit educational institutions, and the U.S. government and its agencies. A contractor had to obtain a numbered Project Exemption Certificate from the exempt entity and give a copy to fuel suppliers before buying fuel tax-free; without it, the contractor had to pay the tax.

For bulk fuel whose taxable use could not be known until burned, the buyer purchased it without sales tax and then filed a consumers' compensating use tax return reporting the cost of fuel withdrawn for taxable off-highway use.

What this means for you

The dividing line was the type of work, not the equipment. Fuel to grow and harvest crops was exempt; the same tractor's fuel used to carve out a farm pond was taxable. Contractors on exempt public or nonprofit projects needed the project exemption certificate in hand before buying fuel — otherwise they owed the tax.

Common questions

Q: What fuels does this cover?
A: Gasoline, gasohol, diesel, and L-P gas used off-highway.

Q: Which off-highway uses are taxable?
A: Building farm ponds, terraces, and waterways; grading, landscaping, and preparing building sites.

Q: Which agricultural uses are exempt?
A: Fuel used in producing or processing farm products or irrigating crops for sale — plowing, planting, cultivating, harvesting — but not pond, waterway, or terrace construction.

Q: How does a contractor buy fuel tax-free for an exempt project?
A: Get a numbered Project Exemption Certificate from the qualifying entity (school, hospital, or government body) and give a copy to the fuel supplier before or when the fuel is first purchased. Without it, pay the tax.

Citations and references

• K.S.A. 79-3606(d) and (e) — project exemption for qualifying construction.
• Kansas Motor Fuel Tax Act — fuel exempt from or refunded the motor-fuel tax is still subject to sales or use tax for taxable off-highway use.

Subject

Taxation of Motor Fuel Used Off-Highway

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 80-0218

Original ruling text

Notice
Notice Number: Taxation of Motor Fuel Used Off-Highway
Tax Type: Kansas Retailers' Sales Tax
Brief Description: Taxation of Fuel Used Off-Highway
Keywords:
Effective Date: 02/18/1980

Body:
NOTICE

TO: Contractors, Farmers and Ranchers

FROM: Sales and Excise Tax Bureau

SUBJECT: Sales and use Tax - Taxability of Motor Fuel Consumed in
Off-Highway Land Improvement Projects

It has been brought to the attention of the Sales and Excise Tax Bureau that there is a misunderstanding by many contractors, farmers
and ranchers concerning the application of Kansas retailers' sales tax or consumers' compensating use tax to motor fuels purchased
for certain off-highway uses.

Motor fuels (gasoline, gasohol, diesel and L-P gas) which are consumed in the off-high operation of motor vehicles or excavation
and construction equipment in connection with the construction of farm ponds, terraces, waterways, grading, landscaping, and in the
preparation of building sites, etc. are subject to either the three percent (3%) (effective 6/1/92 the tax rate increased to 4.9%) Kansas
retailers' sales tax or consumers' compensating use tax.

The tax would apply to any fuels which are exempt from the imposition of a motor fuel tax including fuels purchased with the motor
fuel tax paid if such tax is refundable under the provisions of the Kansas Motor Fuel Tax Act.
EXEMPT USES

Motor fuels consumed in the production or processing of agricultural products or the irrigation of crops for ultimate sale at retail are
exempt from Kansas retailers' sales tax or consumers' compensating use tax. Exempt uses include fuel consumed in plowing, disking,
harrowing, planting or seeding, cultivating and harvesting. Exempt uses would not include fuel consumed in the construction of farm
ponds, waterways and terraces, etc.

Motor fuels consumed in the performance of construction projects which qualify for exemption under the authority of K.S.A. 79-
3606(d) and (e) are exempt from Kansas retailers' sales tax and consumers' compensating use tax.

At the present time "Project Exemption Certificates" are issued only to the following entities:

               1. Political subdivisions of the state of Kansas.
               2. Public or private nonprofit hospitals.
               3. Public or private elementary or secondary schools.
               4. Public or private nonprofit educational institutions.
               5. Government of the United States.
               6. Agencies and instrumentalities of the government of the United States.

  Contractors desiring to purchase fuel without sales tax for tax exempt projects are required to secure a numbered Project
  Exemption Certificate from the hospital, school or governmental agency from whom the work is to be performed and provide
  a copy of the certificate to their fuel suppliers prior to, or at the time tax exempt fuel is first purchased for the project. If a tax
  exempt entity cannot provide a contractor with a project exemption certificate prior to the time work is begun the contractor
  must assume that the project does not qualify for tax exemption status and must pay retailers' sales or consumers'
  compensating use tax on fuel purchased for the project.

  Motor fuel purchased in bulk where its taxable or nontaxable use cannot be determined until it is actually consumed should be
  purchased without retailers' sales tax. Persons buying motor fuel in bulk without retailers' sales tax are required to file a
  consumers' compensating use tax return reporting the cost of motor fuels withdrawn from storage for taxable off-highway uses

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 and remit the three percent (effective 6/1/92 the tax rate increased to 4.9%) tax due directly to the Kansas Department of
 Revenue.

 Persons buying motor fuel in bulk solely for taxable non-highway use should pay sales tax to their supplying dealer.

 Additional questions concerning the application of sales or use tax to the off-highway use of motor fuel should be directed to
 the Sales and Excise Tax Bureau, Kansas Department of Revenue, Topeka, Kansas 66625, or telephone number (913) 296-
 2461.

Date Composed: 10/07/1997 Date Modified: 10/10/2001

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