Were repair parts and repair services for exempt Kansas manufacturing machinery taxable after July 1, 2000?

Plain-English summary

A Kansas animal-feed manufacturer believed its production machinery was exempt but its repair and maintenance services and replacement parts were taxable. The Department explained that Kansas had broadened those exemptions over time.

Before July 1, 1998, only major components of exempt machinery qualified, and a component was treated as major when capitalized. From July 1, 1998 through June 30, 2000, repair and replacement parts and accessories for exempt machinery were exempt.

Beginning July 1, 2000, both repair parts and repair services for exempt manufacturing machinery and equipment were exempt. Notice 00-08 supplied the detailed rules and certificates.

The exemption still required the taxpayer to operate a qualifying manufacturing or processing plant using an integrated production operation commonly regarded as industrial manufacturing or processing. A retailer performing similar processing merely as part of its retail business could not claim the manufacturing exemption.

What this means for you

Manufacturers

Confirm both that the facility is a qualifying industrial plant and that the repaired machinery itself is exempt production equipment.

Repair vendors

The customer's industry alone is insufficient. Obtain the appropriate certificate and tie the work to exempt machinery.

Tax professionals

Transaction date matters for historical liabilities because the exemption broadened in 1998 and again in 2000.

Common questions

Q: Were repair services exempt after July 1, 2000?
A: Yes when performed on exempt manufacturing machinery and equipment.

Q: Were all parts exempt before 1998?
A: No. Only capitalized major components qualified under the rule described.

Q: Could a retail processor claim the exemption?
A: No merely for performing similar processing as part of a retail business.

Citations and references

• K.S.A. 79-3606(kk)(1)(D) — qualifying industrial manufacturing or processing operation
• 1998 Kansas Session Laws, chapter 188 — repair-part expansion cited by the Department
• Notice 00-08 — manufacturing exemption guidance and certificates

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2001-015

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

April 23, 2001

XXXX
XXXX
XXXX

RE: Your recent e-mail

Dear XXXX:

Thank you for your recent e-mail. You state that your company manufactures animal feed in Kansas. You believe that its purchases of manufacturing machinery and equipment for operations here are exempt, but that its purchases of repair services, maintenance services, and repair and replacement parts are taxable.

Kansas has broadened its sales tax exemptions for repair parts and services for manufacturing machinery and equipment during the last few legislative sessions. For periods before July 1, 1998, only major components of exempt machinery and equipment qualified for exemption. A part was considered to be a major component if it was capitalized. From July 1, 1998, to July 1, 2000, all sales of repair and replacement parts and accessories for exempt machinery and equipment were exempt. 1998 Kans. Sess. Laws Ch. 188. Since July 1, 2000, repair parts and repair services for exempt machinery and equipment in Kansas have been exempt from sales tax. I have enclosed a copy of Notice 00-08, which explains the exemption in depth. It is available on our website at www.ink.org/public/kdor/ . The exemption certificates referenced at the end of Notice 00-08 are linked electronically to the Notice on our web site.

Please note that to be able to claim this exemption, your company must operate a plant or facility that fits the definition of “manufacturing or processing plant or facility,” as that term is used in the statute. This means your company must utilize an integrated production operation “as part of what is commonly regarded by the general public as an industrial manufacturing or processing operation.” K.S.A. 79-3606(kk)(1)(D). This bars retailers that perform similar processing operations as part of their retail business from claiming the manufacturing exemption. I hope that this letter and the enclosed Notice provide comprehensive answers to all of your questions. If you need to discuss this matter further or anything else, please call me at (785) 296-3081.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosure

Date Composed: 05/02/2001 Date Modified: 10/10/2001

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