Do chemicals purchased to clean dairy equipment qualify for Kansas's 'consumed in production' sales-tax exemption?

Plain-English summary

A dairy operator asked whether chemicals purchased to clean dairy equipment qualify for Kansas's sales-tax exemption for property "consumed in production." The Department's answer is no — the cleaning chemicals are taxable.

Kansas exempts, under K.S.A. 79-3606(n), "all sales of tangible personal property which is consumed in the production, manufacture, processing" of other tangible personal property for ultimate sale at retail. But the Department pointed to its regulation K.A.R. 92-19-53(c)(3), which lists uses that do not count as being consumed in production — including "repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing."

Because cleaning the dairy equipment is one of those non-qualifying uses, the Department concluded that "the chemicals that you purchase to clean the dairy equipment would not come within the scope of the sales tax exemption in K.S.A. 79-3606(n), and, therefore would be subject to the appropriate Kansas sales tax(es)."

Bottom line: the "consumed in production" exemption covers property used up making the product — not property used to clean or maintain the machinery that makes it. Cleaning chemicals are a taxable purchase.

What this means for you

Dairy, food, and other producers

The manufacturing/production exemption is real, but it is narrower than "anything used in the plant." Supplies you consume to clean, maintain, repair, or service your equipment — or the building itself — are taxable, even though the equipment they clean is used in production.

Watch the regulation's exclusion list

K.A.R. 92-19-53(c)(3) expressly carves out shipping, testing, repairing, servicing, maintaining, cleaning, and storing from the exemption. If a purchase fits one of those functions, expect it to be taxable regardless of how central the underlying operation is to your production.

Sanitation requirements don't change the tax answer

Dairy operations must sanitize equipment, but a legal or health-code obligation to clean does not convert cleaning supplies into exempt production inputs. The tax question turns on whether the item is consumed in producing the product, not on why you must buy it.

Common questions

Q: Are chemicals used to clean dairy equipment exempt as 'consumed in production'?
A: No. The Department ruled they do not fall within K.S.A. 79-3606(n) because K.A.R. 92-19-53(c)(3) treats cleaning the equipment and physical plant as a non-qualifying use.

Q: What kinds of supplies does the regulation exclude from the exemption?
A: Property used for shipping, testing, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing.

Q: Would ingredients or property actually used up in making the dairy product be exempt?
A: The exemption is aimed at property consumed in the production process itself; this ruling addresses only cleaning chemicals, which it found taxable. Other purchases must be tested against the statute and regulation on their own facts.

Citations and references

• K.S.A. 79-3606(n) — exempts tangible personal property "consumed in the production, manufacture, processing, mining, drilling, refining or compounding" of tangible personal property for ultimate sale at retail.
• K.A.R. 92-19-53(c)(3) — lists uses that do not qualify as consumed in production: "shipping, testing, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing."
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-011

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

January 28, 2002

TTTTTTTTTTTT

Dear Ms. TTTTTTTT:

We wish to acknowledge receipt of your e-mail dated January 23, 2002, 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 treating of by-products or wastes derived from any such production process, 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, treating, irrigation and in providing such services. . .”

Pursuant to K.A.R. 92-19-53(c)(3), the following uses of tangible personal property do not qualify for exemption from sales tax as consumed in production: shipping, testing, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing.

In closing, the chemicals that you purchase to clean the dairy equipment would not come within the scope of the sales tax exemption in K.S.A. 79-3606(n), and, therefore would be subject to the appropriate Kansas sales tax(es).

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

Date Composed: 02/12/2002 Date Modified: 02/12/2002

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