Is the sale, or the sale and installation, of farm machinery and equipment subject to Kansas sales tax?

Plain-English summary

A company asked whether the sale — or the sale and installation — of farm machinery and equipment is subject to Kansas retailers' sales tax. The equipment at issue was a grinder used to recycle the carcasses and remains of farm animals into feed. The Department explained that selling and repairing farm machinery is exempt, but installing it is generally taxable.

The Department laid out the rules:

• Sale and repair are exempt. "Kansas law exempts the sale and the service to repair of farm machinery and equipment."
• Installation is taxable — with one exception. "Kansas does not exempt the installation of farm equipment unless the installation is done in connection with the original construction of a building or facility."
• This grinder qualifies. Based on a phone conversation, the Department agreed the grinder "qualifies as farm machinery and equipment when sold to a farmer or rancher."

It then applied those rules to the company's operations:

• The company must register for Kansas retailers' sales tax.
• When it sells and delivers equipment into Kansas, it must tax the sale "unless the purchaser issues to you an exemption certificate."
• When it delivers and installs equipment, it must again tax the sale of the equipment unless the purchaser issues an exemption certificate, and "[t]he gross receipts from the sale of service are subject to tax, unless the installation is performed in connection with the original construction of a building or facility."
• Repair and maintenance services "are not subject to sales tax, when the purchaser issues an exemption certificate."

The Department added that the company "will be required to file corporate income tax returns annually" and enclosed the forms to register for Kansas taxes. (The letter carries the Department's standard private-letter-ruling reliance language keyed to the facts presented, but it is published in the Department's library as an Opinion Letter.)

What this means for you

Sellers of farm machinery and equipment

The sale of qualifying farm machinery to a farmer or rancher is exempt, but you collect tax unless the purchaser gives you an exemption certificate. Get the certificate to document the exempt sale.

When you also install

Installing farm equipment is a taxable service — the charge for the installation labor is taxable — unless the installation is part of the original construction of a building or facility. Don't assume the farm-equipment exemption carries over to the installation labor; it does not.

Repairs and maintenance

Services to repair or maintain farm equipment are not taxed when the purchaser issues an exemption certificate — again, keep the certificate on file.

Registration and income tax

If you sell into Kansas, register for Kansas retailers' sales tax; a company doing business here will also have annual Kansas corporate income tax filing obligations.

Common questions

Q: Is selling farm machinery to a farmer taxable in Kansas?
A: The sale of qualifying farm machinery and equipment is exempt, but the seller collects tax unless the purchaser issues an exemption certificate.

Q: Is installing the equipment taxable?
A: Yes, the installation charge is taxable — unless the installation is done in connection with the original construction of a building or facility.

Q: Are repairs to farm equipment taxable?
A: No, repair and maintenance services are not subject to sales tax when the purchaser issues an exemption certificate.

Citations and references

• The letter states the Department's positions without citing specific statute numbers: the sale and repair of farm machinery and equipment are exempt; installation is taxable unless performed in connection with the original construction of a building or facility; and exemption certificates document the exempt sales and repair services. Because no K.S.A. or K.A.R. citation is given for the holding, none is listed here.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1999-08

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

March 8, 1999

XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated February 1, 1999. In it you ask if the sale or the sale and installation of farm machinery and equipment is subject to Kansas retailers’ sales tax.

Kansas law exempts the sale and the service to repair of farm machinery and equipment. Kansas does not exempt the installation of farm equipment unless the installation is done in connection with the original construction of a building or facility.

Per our telephone conversation, the equipment you describe is a grinder that is used to recycle into feed the carcasses and remains of farm animals. The Department agrees that this equipment qualifies as farm machinery and equipment when sold to a farmer or rancher.

Your company is required to register for Kansas retailers’ sales tax. When your company sells equipment that is delivered into Kansas, you are required to tax the sale, unless the purchaser issues to you an exemption certificate.

When your company delivers and installs equipment, once again, Kansas law requires your company to tax the sale of the equipment, unless the purchaser issues to you an exemption certificate. The gross receipts from the sale of service are subject to tax, unless the installation is performed in connection with the original construction of a building or facility.

Services to repair or maintain farm equipment are not subject to sales tax, when the purchaser issues an exemption certificate.

Your company will be required to file corporate income tax returns annually.

I have enclosed the forms necessary for a business to register for Kansas taxes.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 03/23/1999 Date Modified: 10/10/2001

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