Are a boar stud operation's semen sales, delivery charges, and supplies exempt from Kansas sales tax?

Plain-English summary

A boar stud operation asked how Kansas sales tax applies across six activities — selling and delivering semen dosages to Kansas and out-of-state sow farms, using third-party shippers, and buying packaging, expended supplies, and items for resale. The Department framed its answer around two exemptions: K.S.A. 79-3606(m), which exempts property that becomes an "ingredient or component part" of property produced for ultimate resale, and K.S.A. 79-3606(n), which exempts property "consumed in the process of producing" property or services.

Semen sold to Kansas hog producers (Q1). "The sale of semen is exempt if the purchaser provides you with an exemption certificate. The purchase of semen by persons engaged in the business of breeding and raising hogs for ultimate resale is exempt. The delivery charge is exempt if the item purchased is exempt."

Out-of-state sales (Q2). "The sale and delivery of tangible personal property to an out of state customer, is not subject [to] Kansas sales tax." Those sales fall under the purchaser's state's jurisdiction, and the Department noted that "in most jurisdictions, the sale of the semen would not be subject to tax."

Third-party shippers (Q3). Using "UPS, Pony Express, or U.S. Mail" to deliver does not change the answers to Q1 or Q2.

Packaging and handling items (Q4). Containers, coolers, "couchette bags," "paks," and similar items used "to store, handle and deliver semen" — with cost built into the semen/delivery price rather than billed separately — are "ingredient or component parts" exempt under 79-3606(m); the operation should give vendors an ingredient/component exemption certificate.

Expended supplies (Q5). Gloves, needles, syringes, extender tubing, and similar items "expended in [the] boar stud operation" are "consumed in the production" and exempt under 79-3606(n); use a consumed-in-production exemption certificate.

Items bought for resale (Q6). Items the operation buys to resell (gloves, insemination rods, storage units, lubricant gel) are bought tax-free for resale, and the resales to hog producers are exempt when the buyer furnishes a certificate (again, purchases by those breeding and raising hogs for ultimate resale).

Bottom line: semen and related items sold to Kansas hog producers are exempt with the proper certificate; the operation buys its packaging, expended supplies, and resale inventory exempt; delivery charges follow the taxability of the goods; and out-of-state sales are outside Kansas tax.

What this means for you

Exemptions run on certificates

Nearly every exempt result here depends on a certificate — an ingredient/component certificate (79-3606(m)), a consumed-in-production certificate (79-3606(n)), or a resale certificate. Collect the right certificate from each buyer, and issue the right one to each vendor.

Delivery follows the goods

A separately billed delivery charge is exempt if the item delivered is exempt and taxable if the item is taxable. It does not have its own separate treatment here.

Out-of-state sales are the buyer's state's problem

Sales delivered to customers in other states are not subject to Kansas tax. Check the destination state's rules — the Department noted semen sales are untaxed in most jurisdictions, but that is the other state's call.

Third-party shipping does not change taxability

Whether you deliver yourself or hand the goods to UPS, an express carrier, or the U.S. Mail, the sales tax answer is the same.

Common questions

Q: Do I charge Kansas sales tax on semen sold to a Kansas hog producer?
A: No, when the buyer gives you an exemption certificate — semen bought by those "breeding and raising hogs for ultimate resale" is exempt as an ingredient or component part.

Q: Is the delivery charge taxable?
A: It is "exempt if the item purchased is exempt" — the delivery charge follows the taxability of the goods.

Q: Can I buy my gloves, needles, and syringes tax-free?
A: Yes. Items "expended" in the operation are "consumed in the production" and exempt under K.S.A. 79-3606(n); give your vendors a consumed-in-production exemption certificate.

Q: What about sales delivered to customers in Nebraska, Oklahoma, Colorado, or Missouri?
A: Those are "not subject [to] Kansas sales tax." They are governed by the destination state's law.

Citations and references

• K.S.A. 79-3606(m) — exempts property that becomes an ingredient or component part of property produced for ultimate resale; the basis for exempting the semen sold to hog producers and the operation's packaging/handling items.
• K.S.A. 79-3606(n) — exempts property consumed in the production of property or services; the basis for exempting the operation's expended supplies (gloves, needles, syringes, tubing).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-163

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

July 26, 1999

XXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXX

Dear XXXXXXXXXXX:

I have been asked to respond to your letter dated June 29, 1999. In it, you ask how Kansas sales tax should be applied to the boar stud business of XXXXXXXX.

In your letter you stated:

XXXXXXXXXXXXXXXXXXXXXX is involved in a boar stud operation XXXXXX. requests a private letter ruling on the appropriate sales and use tax due to the State of Kansas as the result of the following activities:

1. XXXXXXXXXX sells and delivers dosages of semen to sow farm operations within the State of Kansas. The customer is billed separately for the semen and for the delivery.

Question: Is the semen dosage taxable? Is the delivery charge taxable? If the answer is no, not taxable, what type of exemption certificate must XXXXXXX obtain from each farm customer?

2. XXXXXXX sells and delivers dosages of semen to sow farm operations within the States of Nebraska, Oklahoma, Colorado and Missouri. Customers are billed separately for the semen and for the delivery.

Question: Is the semen dosage taxable to Kansas? Is the delivery charge taxable to Kansas?

3. Same facts #1 and #2 above.

Question: If UPS, Pony Express, or U.S. Mail made the deliveries, would your sales tax answers differ?

4. XXXXXXXX purchases lapels, containers, couchette bags, reusable Styrofoam coolers, paks, etc., in which to store, handle and deliver semen. Customers are not charged separately for these items. The sales prices of the semen and delivery charge include a markup for these costs.

Questions: Can XXXXXXXX., purchase these items tax-free? If yes, what type of exemption certificate must be filed with the various vendors?

5. XXXXXXXXXX purchases supplies such as gloves, needles, syringes, extender tubing, etc., which are expended in their boar stud operation.

Questions: Are these supplies eligible to be purchased tax-free? If the answer is yes, what type of exemption certificate must be filled with the various vendors?

6. XXXXXXX purchases supplies such as gloves, insemination rods, storage units, lubricant gel, etc., to resell to their customers. The customers use these supplies in their sow farm operation.

Question: Are these purchases by XXXXXXX tax-free? Are these sales to farm customers taxable?

Kansas retailers’ sales tax law exempts all sales of tangible personal property and services that are and ingredient or component part of tangible personal or services for ultimate resale. K.S.A. 79-3606(m). The law also exempts tangible personal property and services that are consumed in the process of producing of tangible personal property or services. K.S.A. 79-3606(n).

In answer to your specific questions:

Answer to question 1. The sale of semen is exempt if the purchaser provides you with an exemption certificate. The purchase of semen by persons engaged in the business of breeding and raising hogs for ultimate resale is exempt. The delivery charge is exempt if the item purchased is exempt.

Answer to question 2. The sale and delivery of tangible personal property to an out of state customer, is not subject Kansas sales tax. This type of sale and delivery is subject to the jurisdiction of the purchaser. You should contact the state in which delivery occurs for advice as the taxability of this particular transaction. Given the facts of this transaction, in most jurisdictions, the sale of the semen would not be subject to tax.

Answer to questions 3 and 4. No, answers to questions 1 or 2 would not change if delivery is made by a third party shipper.

Answer to question 4. These items as described and used by your business are “ingredient or component parts” and are exempt from Kansas sales and compensating tax. You should issue to your vendors an exemption certificate designating these items as ingredient or component parts, etc.

Answer to question 5. These items as described and used by your business are “consumed in the production” and are exempt from Kansas sales and compensating tax. You should issue to your vendors an exemption certificate designating these items as consumed in the production, etc.

Answer to question 6. Your purchase of items intended for resale are not taxable. You should issue your vendor a resale exemption certificate. The sale of these items are exempt if the purchaser provides you with an exemption certificate. The purchase of these items by persons engaged in the business of breeding and raising hogs for ultimate resale is exempt. The delivery charge is exempt if the item purchased is exempt.

I have enclosed a booklet that contains the appropriate exemption certificates and instructions

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 affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 08/04/1999 Date Modified: 10/11/2001

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