Which parts of an agricultural irrigation system are exempt from Kansas sales tax as farm machinery, and which are taxable as real property?

Plain-English summary

A taxpayer asked whether the components of an agricultural irrigation system are exempt from Kansas sales tax. The Department split the system into exempt farm machinery and taxable real property.

The exemption. "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.'" Under K.A.R. 92-12-32(b)(1), "'[f]arm machinery and equipment' shall mean machinery and equipment purchased by a farmer or rancher … which is ordinary and necessary for the growing or raising of agricultural products," and it "shall not include disposable supplies, buildings, building materials, silos, fence, fencing materials, land," and similar items.

Exempt as farm machinery and equipment (only "if none of the water pumped was used for human consumption and/or sanitation"): "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."

Taxable as part of the real property: "the cement base, the underground discharge pipe, and the underground plastic PVC irrigation 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."

Services. "Any service performed in or on irrigation wells shall be subject to sales tax, unless the service of installing or applying tangible personal property is in connection with original construction, that is the first or initial construction of the respective irrigation well."

Bottom line: the movable pumping and distribution equipment is exempt farm machinery (if the water is not for human consumption or sanitation), the fixed underground and permanently attached parts are taxable real property, and well services are taxable unless they are part of the well's first construction.

What this means for you

Movable pumping equipment is exempt farm machinery

The pivot system, pumps and motors, valves, column pipe, flowmeter, gear drive, bowl units, tubing and shaft assembly, and discharge head qualify as exempt farm machinery and equipment under K.S.A. 79-3606(t).

The water-use condition matters

The equipment exemption applies only if none of the pumped water is used for human consumption or sanitation. Water put to those uses would take the equipment outside the exemption the Department described.

Fixed and underground parts are taxable real property

The cement base, underground discharge pipe, underground PVC irrigation pipe, pressure tank, galvanized nipples and fittings, well pits and lids, well seals, and pitless units/adapters are treated as part of the real property — "any other permanently attached item" — and are taxable.

Well services are taxable unless part of original construction

Services performed in or on irrigation wells are taxable, with one exception: installing or applying tangible personal property "in connection with original construction" — the first or initial construction of the well — is not taxed.

Split the invoice by category

Because one irrigation project mixes exempt equipment with taxable real-property materials and services, the tax result turns on classifying each component and each service correctly.

Common questions

Is irrigation equipment exempt in Kansas?
The movable farm machinery — pivots, pumps, motors, valves, column pipe, and the like — is exempt under K.S.A. 79-3606(t), if none of the water is used for human consumption or sanitation.

Is underground irrigation pipe exempt?
No. The underground discharge pipe and underground PVC irrigation pipe are treated as part of the real property and are taxable.

What about the cement base, pressure tank, and well fittings?
Those are taxable too — the Department listed them as permanently attached items that are part of the real property.

Are services on the well taxable?
Yes, unless the service installs or applies tangible personal property as part of the well's original (first or initial) construction.

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 and maintenance services for such equipment.
• K.A.R. 92-12-32(b)(1) — defines "farm machinery and equipment" as machinery and equipment purchased by a farmer or rancher that is ordinary and necessary for growing or raising agricultural products, excluding buildings, building materials, and similar items.
• 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 17, 1998 by Thomas P. Browne, Jr., Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-91

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 17, 1998

TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT

RE: Sales tax on underground irrigation pipe

Dear Mr. TTTTT:

We wish to acknowledge receipt of your letter which was received by this office on May 27, 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. . .”

K.A.R. 92-12-32(b)(1) states in part: "Farm machinery and equipment" shall mean machinery and equipment purchased by a farmer or rancher. . . which is ordinary and necessary for the growing or raising of agricultural products. Farm machinery and equipment shall not include disposable supplies, buildings, building materials, silos, fence, fencing materials, land, all terrain vehicles, passenger motor vehicles, trucks, truck tractors, trailers, semitrailers, and pole trailers, other than a farm trailer. . ."

It is the opinion of this department 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, if none of the water pumped was used for human consumption and/or sanitation, and therefore could be purchased exempt from sales tax under K.S.A. 79-3606(t). However, the cement base, the underground discharge pipe, and the underground plastic PVC irrigation 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.

Any service performed in or on irrigation wells shall be subject to sales tax, unless the service of installing or applying tangible personal property is in connection with original construction, that is the first or initial construction of the respective irrigation well.

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

Date Composed: 09/01/1998 Date Modified: 10/11/2001

Table 1

Table 2