Are hand tools sold to a Kansas manufacturer exempt from sales tax if the manufacturer uses them in production?

Plain-English summary

A company sells hand tools — pneumatic nailers, staplers, and steel-strapping tools that run off a compressor, plus the same tools in electric versions — and asked whether the tools it sells to Kansas manufacturers are subject to sales tax. It flagged that the law had changed since it last asked in December 1999. The Department confirmed the change and explained the current rule.

The law changed. The Department said "the Kansas law has indeed changed since your last request for advice" and enclosed a copy of the current statute, K.S.A. 79-3606(kk) — the integrated production machinery and equipment exemption. So an older answer the seller may have relied on no longer controls.

The current rule: a 50% use test. Under present law, tools like these "are exempt from Kansas sales tax if they are sold to a manufacturer who will use them 50% or more of the time in a manufacturing process." Two conditions drive the exemption:

• the buyer is a manufacturer, and
• the tool is used 50% or more of the time in a manufacturing process.

The type of tool (pneumatic vs. electric, hand-held) is not the issue — the buyer and the use are.

The exemption certificate does the proving. The Department explained that the manufacturer confirms the qualifying use by giving the seller an exemption certificate at the time of purchase. The seller should obtain and keep that certificate to support the exempt sale. The Department pointed the seller to page 27 of its publication Kansas Exemption Certificates for the details.

Bottom line: hand tools sold to a Kansas manufacturer are exempt under the integrated production exemption (K.S.A. 79-3606(kk)) when the manufacturer uses them at least 50% of the time in production and gives the seller an exemption certificate. Because the law changed after 1999, sellers should apply the current 50%-use standard rather than any earlier guidance.

What this means for you

Tool and equipment sellers

A sale to a manufacturer can be exempt — but the exemption belongs to the manufacturer's use, not the tool's category. Get an exemption certificate from the manufacturing customer at the time of purchase; without it, treat the sale as taxable. The Department's Kansas Exemption Certificates publication (page 27) shows the right form.

Manufacturers buying tools

To buy qualifying tools tax-free, you must actually use them 50% or more of the time in a manufacturing process and certify that use to the seller. Keep your own records supporting the qualifying-use level in case the Department asks.

Old advice can go stale

This seller's prior answer was overtaken by a statutory change. A private letter ruling (and any informal advice) is only good under the law in effect — when the statute changes, re-confirm. Here the move to K.S.A. 79-3606(kk) replaced whatever applied before December 1999.

Common questions

Q: Are hand tools sold to a Kansas manufacturer taxable?
A: Not if the manufacturer uses them 50% or more of the time in a manufacturing process — then they are exempt under K.S.A. 79-3606(kk). Otherwise the sale is taxable.

Q: Does it matter whether the tool is pneumatic or electric?
A: No. The Department applied the exemption to both the compressor-powered and electric versions; what matters is the manufacturer's qualifying use, not the power source.

Q: How does the seller support the exempt sale?
A: The manufacturer gives the seller an exemption certificate at the time of purchase, confirming the qualifying use. The seller should keep it on file.

Q: Why did the answer change from the seller's earlier inquiry?
A: Kansas law changed after December 1999. The current rule is in K.S.A. 79-3606(kk), which the Department enclosed with the ruling.

Citations and references

• K.S.A. 79-3606(kk) — the integrated production machinery and equipment exemption; the Department enclosed the current statute and applied it to exempt tools sold to a manufacturer that uses them 50% or more of the time in a manufacturing process.
• Kansas Exemption Certificates (Department publication), page 27 — the Department's reference for the exemption certificate the manufacturer provides at the time of purchase.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-113

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 26, 2001

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear XXXXX:

Your correspondence of October 22, 2001 has been referred to me for response. Thank you for your inquiry.

Your letter notes that your company sells pneumatic tools, such as pneumatic nailers, pneumatic staplers and pneumatic steel strapping tools. These tools are held in the hand, but are powered by compressors, and could not work without the compressor. You also sell these same tools that are powered by electricity.

By your letter you ask whether the tools you sell to Kansas manufacturers are subject to sales tax. You indicate your request for advice is prompted, in part, by your understanding that the Kansas law that controls this area has been amended since you last sought our advice in December of 1999.

Please note the Kansas law has indeed changed since your last request for advice. For your reference, a copy of the current law found in K.S.A. 79-3606(kk) is enclosed.

In response to your request for advice, please note that under present law, tools such as those referenced in your letter are exempt from Kansas sales tax if they are sold to a manufacturer who will use them 50% or more of the time in a manufacturing process. The manufacturer will, in effect, confirm this usage by providing you with an exemption certificate at the time of purchase. For your reference, please note page 27 of our publication Kansas Exemption Certificates, a copy of which is enclosed.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Enclosure: K.S.A. 79-3606(kk)
Kansas Exemption Certificates

Date Composed: 10/26/2001 Date Modified: 10/26/2001

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