Can the manufacturing machinery and equipment exemption apply to electrical work on a main breaker that powers production equipment?

Plain-English summary

An electric company asked whether a customer could use the manufacturing machinery and equipment (integrated plant) exemption for work done on a main breaker that supplies power to a piece of production machinery.

The Department said yes — with one exception. Under K.S.A. 79-3606(kk)(3)(I), machinery and equipment used to transmit or transport electricity ... to that manufacturer's production operations is treated as an integral part of the integrated production operation, so the breaker work can qualify.

The exception applies when the same main breaker supplies power to both exempt production equipment and taxable uses (such as general lighting or heating), and more than 50% of the electricity is for the taxable use. In that case the primary-use test — K.S.A. 79-3606(kk)(6) (primary use governs) and (2)(F) ("primary" means more than 50% of the time) — makes the work taxable. (The statute at (kk)(5)(C) separately excludes transmission and distribution equipment not primarily used in production at the plant.)

What this means for you

Electricians and electrical contractors serving manufacturers

Work on a breaker or feed that primarily powers production equipment can be exempt. But check the load split — if the breaker mostly (over 50%) serves lighting, heating, or other non-production uses, the work is taxable.

Manufacturers

The exemption follows primary use. Equipment that mostly powers production qualifies; equipment that mostly powers plant lighting/heating does not.

Common questions

Q: Is work on a main breaker feeding a production machine exempt?
A: Yes, generally — it transmits electricity to production operations under K.S.A. 79-3606(kk)(3)(I).

Q: When is it taxable instead?
A: When the breaker serves both production and taxable uses and more than 50% of the electricity goes to the taxable use — the primary-use test in (kk)(6) and (2)(F).

Citations and references

• K.S.A. 79-3606(kk)(3)(I) — treats equipment that transmits/transports electricity to the manufacturer's production operations as an integral part of production.
• K.S.A. 79-3606(kk)(5)(C) — excludes transmission and distribution equipment not primarily used in production at the plant.
• K.S.A. 79-3606(kk)(6) and (2)(F) — the primary-use test: primary use governs qualification, and "primary" means more than 50% of the time; a breaker mostly serving taxable uses does not qualify.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2005-020

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 12, 2005

(Redacted)

RE: Your letter dated June 21, 2005

Dear (Redacted):

Thank you for your recent letter. You work for an electric company and ask: "Would a company be able to use this exemption certificate (manufacturing machinery and equipment) for work done on a main breaker that would supply power to a piece of machinery used in production?" The answer to your question is yes, with one exception. That exception occurs if the main breaker supplies power to both exempt production equipment and taxable lighting, heating, etc. and more than 50% of the electricity is for the taxable use. Provisions in K.S.A. 2004 Supp. 79-3606(kk) supports this answer.

Subsection (3)(I) of K.S.A. 2004 Supp. 79-3606(kk) provides:

(3) For purposes of this subsection, machinery and equipment shall be deemed to be used as an integral or essential part of an integrated production operation when used: . . .
(I) to transmit or transport electricity, coke, gas, water, steam or similar substances used in production operations from the point of generation, if produced by the manufacturer or processor at the plant site, to that manufacturer's production operation; or, if purchased or delivered from offsite, from the point where the substance enters the site of the plant or facility to that manufacturer's production operations. . . .

Subsection (5)(c) provides:

(5) "Machinery and equipment used as an integral or essential part of an integrated production operation" shall not include: . . .
(C) transportation, transmission and distribution equipment not primarily used in a production, warehousing or material handling operation at the plant or facility, including the means of conveyance of natural gas, electricity, oil or water, and equipment related thereto, located outside the plant or facility. . . .

Subsection (6) and (2)(F) provide:

(6) . . . When machinery or equipment is used as an integral or essential part of production operations part of the time and for nonproduction purpose at other times, the primary use of the machinery or equipment shall determine whether or not such machinery or equipment qualifies for exemption.

(F) "primary" or "primarily" mean more than 50% of the time.

I believe that these statutory provisions clearly answer your question. 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. Please let me know if you have additional questions.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 07/12/2005 Date Modified: 07/12/2005

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