Is gas consumed by pollution-control equipment to treat manufacturing by-products exempt from Kansas sales tax?

Plain-English summary

A manufacturer asked whether gas its pollution-control equipment burns to treat by-products of the manufacturing process is taxable. The Department pointed to K.S.A. 79-3606(n), which exempts from Kansas retailers' sales tax all sales of tangible personal property consumed in the production, manufacture, processing, mining, drilling, refining, or compounding of tangible personal property — and, importantly, the treating of by-products or wastes derived from any such production process — for ultimate sale at retail.

Applying that provision, the Department concluded that gas consumed by pollution-control equipment to treat by-products of the manufacturing process is exempt from Kansas retailers' sales tax. The statute also lets a purchaser of such property obtain an exemption certificate number from the Director of Taxation and furnish it to the supplier.

What this means for you

If you manufacture in Kansas and consume utilities or other property to treat the by-products or wastes your production process creates, that consumption can qualify for the "consumed in production" exemption.

• By-product/waste treatment counts. The exemption isn't limited to property consumed in making the product itself; K.S.A. 79-3606(n) expressly reaches the treating of by-products or wastes from the production process.
• Gas for pollution control was exempt here. The Department applied the exemption to gas consumed by pollution-control equipment treating manufacturing by-products.
• Use the exemption certificate. To buy the property tax-free, obtain an exemption certificate number from the Director of Taxation and give it to your supplier.
• The item must be consumed in the qualifying process. The exemption turns on the property being consumed in production or in the treatment of the resulting by-products/wastes for property ultimately sold at retail.

Common questions

Is gas used in pollution-control equipment taxable in Kansas?
Not when it is consumed to treat by-products of the manufacturing process — the Department ruled that is exempt under K.S.A. 79-3606(n).

Does the "consumed in production" exemption cover waste treatment?
Yes. The statute expressly includes the treating of by-products or wastes derived from a production process.

How does a manufacturer claim the exemption?
By obtaining an exemption certificate number from the Director of Taxation and furnishing it to the supplier.

Does this exempt all utilities a plant uses?
No. The exemption applies to property consumed in the qualifying production or by-product/waste treatment; other uses are judged on their own facts.

Citations and references

• K.S.A. 79-3606(n) — exempts tangible personal property consumed in production/manufacturing and in the treating of by-products or wastes derived from such a production process, for ultimate retail sale; allows a purchaser to obtain and furnish an exemption certificate number.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-15.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 6, 1998

XXXXXXXXXXXXXXXXX
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Dear XXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated January 27, 1997.

K.S.A. 79-3606 states that the following shall be exempt from Kansas retailers’ sales tax:

(n) all sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the treating of by-products or wastes derived from any such production process, the providing of services or the irrigation of crops for ultimate sale at retail within or without the state of Kansas; and any purchaser of such property may obtain from the director of taxation and furnish to the supplier an exemption certificate number for tangible personal property for consumption in such production, manufacture, processing, mining, drilling, refining, compounding, treating, irrigation and in providing such services; (emphasis added).

Therefore, it would be the opinion of the Department that gas consumed by pollution control equipment to treat by products of the manufacturing process would be exempt from Kansas retailers’ sales tax.

Sincerely yours,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 02/10/1998 Date Modified: 10/10/2001

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