Is the electricity a manufacturer uses to run production equipment exempt from Kansas sales tax?

Plain-English summary

A manufacturer asked whether the electricity it uses to run its plant is exempt from Kansas sales tax. The Department applied the "consumed in production" exemption and split the answer by how the power is used.

The exemption — K.S.A. 79-3606(n) — covers "all sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the providing of services or the irrigation of crops for ultimate sale at retail." A purchaser can get an exemption certificate number from the director of taxation and give it to the supplier.

The four-part test for electricity. The portion of electricity is exempt if it is: (1) essential or necessary to the process; (2) used in the actual process at the location during the production activity; (3) immediately consumed or dissipated in the process; and (4) used in the production, manufacture, processing, mining, drilling, refining, or compounding of tangible personal property.

What is not exempt. Electricity used for shipping, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing is taxable.

Applied here, the Department's opinion is that the electricity used to power the extruders, presses, augers, pumps, and roller mills comes within the 79-3606(n) exemption. To claim it, the manufacturer furnishes its electric utility form BT/ST-28B (Rev. 3/96), the exemption certificate for electricity furnished through one meter.

What this means for you

If you manufacture in Kansas, you can exempt the power that actually drives production — but you have to separate it from the rest.

• Only production-consumed power qualifies. Electricity that is essential to the process, used in the actual production at the location, and immediately consumed while making tangible personal property is exempt under 79-3606(n).
• Support functions stay taxable. Power for shipping, repair, servicing, maintenance, cleaning the equipment or plant, and storage is not exempt — you owe tax on that portion.
• Production machinery is the clear case. Here, electricity running the extruders, presses, augers, pumps, and roller mills qualified for the exemption.
• File the right certificate. Give your utility the exemption certificate (form BT/ST-28B) for electricity through one meter; where production and non-production loads share a meter, expect to allocate the exempt share.

Common questions

Is a manufacturer's electricity exempt from Kansas sales tax?
The production portion is. Under K.S.A. 79-3606(n), electricity consumed in producing tangible personal property is exempt if it meets the four-part test (essential to the process, used in the actual process at the location, immediately consumed, and used in production/manufacturing).

Which uses of electricity are not exempt?
Electricity used for shipping, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing is taxable.

Does power for production machinery qualify?
Yes. The Department found the electricity used to run the extruders, presses, augers, pumps, and roller mills comes within the 79-3606(n) exemption.

How do I claim the exemption?
Furnish your electric utility the exemption certificate — form BT/ST-28B (Rev. 3/96) — for electricity furnished through one meter.

Citations and references

• K.S.A. 79-3606(n) — exempts tangible personal property (including electricity) consumed in the production, manufacture, processing, mining, drilling, refining, or compounding of tangible personal property for ultimate sale at retail; the Department's four-part test limits the exemption to power essential to, used in, and immediately consumed in the actual production process, and excludes shipping, repair, servicing, maintenance, cleaning, and storage.
• Kansas exemption certificate form BT/ST-28B (Rev. 3/96) — the exemption certificate the manufacturer furnishes its utility for electricity furnished through one meter.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1999-19.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 2, 1999

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RE: TTTTTTTTTTTTTTTTTT

Dear Ms. TTTTTT:

We wish to acknowledge receipt of your letter dated January 22, 1999, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(n) exempts from sales tax: "all sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, 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, irrigation and in providing such services."

The portion of electricity that the above referenced company uses that meets the following requirements is exempt from state and local sales taxes: 1) essential or necessary to the process; 2) used in the actual process at the location during the production activity; 3) immediately consumed or dissipated in the process; 4) used in the production, manufacture, processing, mining, drilling, refining, or compounding of tangible personal property. The following uses of electricity are not exempt from sales tax: shipping, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing.

In closing, it is the opinion of this department that the electricity used to power the extruders, presses, augers, pumps and the roller mills would come within the scope of the sales tax exemption in K.S.A. 79-3606(n). You will need to furnish your electric utility form BT/st-28B (Rev. 3/96), which is an exemption certificate for electricity furnished through one meter.

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: 02/11/1999 Date Modified: 10/11/2001

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