Which of a farmer's water-well and irrigation purchases are exempt as farm machinery and equipment, and which are taxable?

Plain-English summary

A farmer asked how Kansas sales tax applies to water-well and irrigation purchases and to general farm supplies. The Department worked through the farm machinery and equipment exemption item by item.

The exemption statute. K.S.A. 79-3606(t) exempts "all sales of farm machinery and equipment or aquaculture machinery and equipment, repair and replacement parts therefor and services performed in the repair and maintenance of such equipment," including equipment used in Christmas tree farming, but not passenger vehicles, trucks, trailers, and similar vehicles (other than a farm trailer).

Well drilling and irrigation. "The gross receipts from the service of drilling a new water well would [be] exempt from retailer[s'] sales tax," but "materials expended or installed in a new water well would be subject [to] sales tax." Likewise, "services to assemble irrigation equipment for farm use would not be subject to retailers' sales tax," and irrigation-system parts that are farm machinery and equipment are exempt if purchased for farm use.

What counts as exempt farm machinery. The Department listed items it has long treated as farm machinery and equipment: the pivot system, heat exchanger, flowmeter, gear drive, bowl units, column pipe, tubing and shaft assembly, check valve, discharge head, submersible pumps and motors, gate and check valves, and drop pipe.

What is taxable real property. By contrast, "the cement base, casing, gravel and the underground discharge pipe, along with the pressure tank, galvanized nipples and fittings, well pits and lids, well seals, and pitless units and/or adapters are not farm machinery and equipment, but in fact are a part of real property." Electrical measurement and transmission property (transmission lines, substations, line transformers, electrical meters, control boxes, switches, disconnects) also falls outside the exemption.

General farm supplies. "Aside from the farm machinery and equipment sales tax exemption, farmers and ranchers must usually pay sales tax on items purchased for use in farming and ranching operations" — boots, gloves, work clothes, fencing materials, building materials, baling twine and wire, hand tools, and the like. Separately, drill bits used in oil or gas exploration and production are exempt under K.S.A. 79-3606(pp).

What this means for you

The dividing line is "machinery" vs. "real property"

Movable equipment that operates the irrigation or pumping system — pivots, pumps, motors, valves, the pump assembly — is exempt farm machinery. Items that are permanently attached and become part of the land — casing, cement base, gravel, discharge pipe, tanks, fittings — are real property and are taxable, even though they are part of the same well.

Labor to drill or assemble is exempt; the materials may not be

The service of drilling a new well or assembling irrigation equipment for farm use is exempt. But that does not exempt the materials installed in a new well, which are taxable.

Buy machinery for farm use

The equipment exemption applies to farm machinery and equipment purchased for farm use. Keep documentation that the irrigation and pump components are being bought for a qualifying farm use.

Most general supplies are taxable

The exemption is narrow. Everyday ranch and farm supplies — clothing, fencing, building materials, twine, hand tools — remain subject to Kansas sales tax. Oil/gas exploration drill bits are a separate, specific exemption under K.S.A. 79-3606(pp).

Common questions

Is my irrigation pivot system exempt?
Yes. The pivot system, pumps, motors, valves, and the pump/shaft assembly are treated as farm machinery and equipment and are exempt when purchased for farm use.

What about the well casing, tank, and fittings?
Those are taxable. The Department treats casing, cement base, gravel, discharge pipe, pressure tanks, fittings, well seals, and pitless adapters as part of real property, not farm machinery.

Do I pay tax on the well-drilling labor?
No. The service of drilling a new water well is exempt from retailers' sales tax. But the materials installed in the new well are taxable.

Are my everyday farm supplies exempt?
Generally no. Boots, gloves, work clothes, fencing, building materials, baling twine and wire, and hand tools are subject to sales tax. Drill bits used in oil or gas exploration/production are exempt under K.S.A. 79-3606(pp).

Citations and references

• K.S.A. 79-3606(t) — exempts sales of farm machinery and equipment (and aquaculture machinery and equipment), repair and replacement parts, and repair/maintenance services; excludes most vehicles other than farm trailers, referencing vehicle definitions in K.S.A. 8-126.
• K.S.A. 79-3606(pp) — exempts drill bits actually used in the exploration and production of oil or gas.
• Information Guide 19-89-2 — "Sales Tax Exemption for Farm Machinery and Equipment and Certain Supplies," enclosed with the ruling.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued October 30, 1998 by Thomas P. Browne, Jr., Tax Specialist, Office of Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-175

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 30, 1998

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Dear Ms. TTTTT:

We wish to acknowledge receipt of your letter postmarked October 10, 1998, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(t) exempts from sales tax: “all sales of farm machinery and equipment or aquaculture machinery and equipment, repair and replacement parts therefor and services performed in the repair and maintenance of such equipment. For purposes of this subsection the term “farm machinery and equipment or aquaculture machinery and equipment” shall include machinery and equipment used in the operation of Christmas tree farming but shall not include any passenger vehicle, truck, truck tractor, trailer, semitrailer or pole trailer, other than a farm trailer, as such terms are defined by K.S.A. 8-126 and amendments thereto. . .”

The gross receipts from the service of drilling a new water well would exempt from retailer’ sales tax. Materials expended or installed in a new water well would be subject sales tax.

Services to assemble irrigation equipment for farm use would not be subject to retailers’ sales tax. The parts of the irrigation system that are deemed to be farm machinery and equipment would also be exempt if purchased for farm use.

It has been a long standing position of the Kansas Department of Revenue that the pivot system, heat exchanger, flowmeter, gear drive, bowl units, column pipe, tubing and shaft assembly, check valve, and the discharge head, as well as submersible pumps and motors, gate and check valves and drop pipe, would constitute farm machinery and equipment.

The cement base, casing, gravel and the underground discharge pipe, along with the pressure tank, galvanized nipples and fittings, well pits and lids, well seals, and pitless units and/or adapters are not farm machinery and equipment, but in fact are a part of real property, as is any other permanently attached item. Additionally, any tangible personal property used to measure and transmit electrical power (i.e., transmission lines, substations, line transformers, electrical meters, control boxes, switches and electrical disconnects) would not come within the exemption provisions of K.S.A. 79-3606(t), as farm machinery and equipment.

Aside from the farm machinery and equipment sales tax exemption, farmers and ranchers must usually pay sales tax on items purchased for use in farming and ranching operations. Thus, purchases of boots, gloves, work clothes, fencing materials, building materials, baling twine and wire, hand tools, etc., are subject to sales tax in the state of Kansas. Drill bits actually utilized in the exploration and production of oil or gas are specifically exempt from Kansas sales tax(es), pursuant to K.S.A. 79-3606(pp).

For your convenience, I have enclosed Information Guide 19-89-2, entitled, “Sales Tax Exemption for Farm Machinery and Equipment and Certain Supplies”.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Enc

Date Composed: 11/02/1998 Date Modified: 10/10/2001

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