On a farmer's irrigation invoice, which well-drilling services, equipment, and materials are exempt from Kansas sales tax and which are taxable?

Plain-English summary

A representative asked the Department to review a farmer's invoice for an irrigation water well and its equipment, "for use in the irrigation of land devoted to agriculture," and sort out what is taxable. The invoice covered "the original construction of a water well, materials that are installed as a part of that well and services to assemble farm irrigation system and the related irrigation equipment."

Exempt services. "The gross receipts from the service of drilling a new water well would [be] exempt from retailer[s]' sales tax." And "[s]ervices to assemble irrigation equipment for farm use would not be subject to retailers' sales tax."

Taxable well materials. "Materials expended or installed in a new water well would be subject [to] sales tax."

Exempt farm machinery and equipment (if purchased for farm use). The Department repeated its "long standing position" 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."

Taxable real-property and electrical items. "The cement base, 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." In addition, "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)."

Bottom line: the drilling service and the equipment-assembly labor are exempt, and the movable pumping equipment is exempt farm machinery for farm use — but the well materials, the permanently attached real-property items, and the electrical power-handling equipment are all taxable.

What this means for you

Well-drilling and assembly labor are exempt

The service of drilling the new water well is exempt, and the labor to assemble the farm irrigation system is not subject to retailers' sales tax.

Movable pumping equipment is exempt farm machinery

Pivot systems, pumps and motors, valves, column pipe, flowmeters, and the related parts the Department listed are exempt farm machinery and equipment when purchased for farm use.

Well materials and fixed items are taxable

Materials installed as part of the well are taxable, as are the cement base, underground discharge pipe, pressure tank, fittings, well pits and lids, seals, and pitless adapters — the Department treats them as part of the real property.

Electrical power equipment is outside the exemption

Property used to measure and transmit electrical power — transmission lines, substations, transformers, meters, control boxes, switches, and disconnects — does not qualify as farm machinery under K.S.A. 79-3606(t) and is taxable.

Common questions

Is drilling a new irrigation well taxable?
No. The gross receipts from the well-drilling service are exempt, as is the labor to assemble the farm irrigation equipment.

Is the irrigation equipment exempt?
The movable pumping equipment (pivots, pumps, motors, valves, column pipe, etc.) is exempt farm machinery when bought for farm use.

What about the materials in the well and the fixed parts?
Those are taxable — well materials, the cement base, underground discharge pipe, pressure tank, fittings, well pits, seals, and pitless adapters are treated as real property.

Is the electrical equipment exempt as farm machinery?
No. Transmission lines, transformers, meters, control boxes, switches, and disconnects do not come within the K.S.A. 79-3606(t) farm-machinery exemption.

Citations and references

• K.S.A. 79-3606(t) — the farm machinery and equipment exemption; the Department listed the movable irrigation parts that qualify (for farm use) and the real-property and electrical power-handling items that do not.
• The ruling states in prose that well-drilling and irrigation-assembly services are exempt while materials installed in the well are taxable.
• 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 August 21, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-82

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 21, 1998

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Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated June 10, 1998. This response is a private letter ruling in behalf of your client XXXXXXXXXX. You asked the Department to review the enclosed invoice and determine the taxability of the transaction. The invoice from XXXXXXXXXXXXXXX indicates various services and tangible personal property for which XXXXXX was billed. You indicate XXXXXXXXX is a farmer and that the well and related items are for use in the irrigation of land devoted to agriculture. The invoice details charges for the original construction of a water well, materials that are installed as a part of that well and services to assemble farm irrigation system and the related irrigation equipment.

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, 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.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 09/01/1998 Date Modified: 10/10/2001

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