Is a vegetable-oil product (CAP18) injected to remediate groundwater contamination at a manufacturing plant exempt from Kansas sales tax?

Plain-English summary

A Kansas rubber-products manufacturer faced trichloroethene (TCE) contamination in the groundwater under its plant. To remediate it, the company planned to inject CAP18 — a vegetable-oil product — into the aquifer, creating an anaerobic environment that dechlorinates the dissolved TCE and other chlorinated solvents. The president/CEO asked whether the purchase of CAP18 is exempt from sales tax.

The Department said yes, and drew on two different exemptions:

• The injection-system equipment is exempt under the integrated production exemption, K.S.A. 79-3606(kk), because subsection (kk)(2)(A) defines "integrated production operations" to include "waste, pollution and environmental control operations."
• The CAP18 itself is exempt under a different subsection — K.S.A. 79-3606(n) — which exempts tangible personal property consumed in the production/manufacture/processing of tangible personal property, including the treating of by-products or wastes derived from a production process. A purchaser furnishes the supplier an exemption certificate number to claim it.

So both the equipment and the consumable remediation product are exempt, under the (kk) and (n) exemptions respectively.

What this means for you

Manufacturers running pollution-control or remediation operations

Equipment for waste, pollution, and environmental-control operations at your plant is exempt under the integrated production exemption (K.S.A. 79-3606(kk)). And consumable products used up in production or in treating production wastes — like the CAP18 injected here — are exempt under the separate "consumed in production" exemption (K.S.A. 79-3606(n)), claimed with an exemption certificate.

Suppliers of remediation chemicals and equipment

Sales of environmental-control equipment and of consumables used in a manufacturer's production/waste-treatment process can be made exempt when the buyer provides the proper exemption certificate.

Common questions

Q: Is CAP18 injected for groundwater remediation taxable in Kansas?
A: No. The Department held the purchase exempt as tangible personal property consumed in production under K.S.A. 79-3606(n).

Q: What about the injection equipment?
A: It is exempt under the integrated production exemption, K.S.A. 79-3606(kk), which covers waste, pollution, and environmental-control operations.

Q: Why are two different exemptions involved?
A: The equipment is exempt under (kk) as integrated-production machinery, while the consumable CAP18 is exempt under (n) as property consumed in production — different subsections for different items.

Citations and references

• K.S.A. 2006 Supp. 79-3606(kk); (kk)(2)(A) — the integrated production exemption; "integrated production operations" include "waste, pollution and environmental control operations," so the injection-system equipment is exempt.
• K.S.A. 2006 Supp. 79-3606(n) — exempts tangible personal property consumed in the production, manufacture, or processing of tangible personal property, and in the treating of by-products or wastes from a production process; the CAP18 qualifies, claimed via an exemption certificate.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2007-005

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 26, 2007

XXXX
XXXX
XXXX

RE: Your e-mail received on July 13, 2007

Dear XXXX:

Thank you for your recent e-mail. You are the president and CEO of a company in Dogjaw, Kansas that manufacturers rubber products. Over the years, trichloroethene (TCE) has migrated into the groundwater under the manufacturing plant. To remediate and control the TCE contamination, your company intends to use a system that injects CAP18 into the aquifer. CAP18 is a vegetable-oil product. The injection of CAP18 will create an anaerobic environment that is capable of dechlorinating the dissolved TCE as well as any other associated chlorinated solvents.

You ask if your purchase of CAP18 is exempt from sales tax. The answer is yes --- the purchase is exempt from Kansas sales and use tax.

You correctly observe that your purchase of the equipment that makes up the injection system is exempt under K.S.A. 2006 Supp. 79-3606(kk), the integrated production exemption which the Kansas legislature enacted in 2000. See K.S.A. 79-3606(kk)(2)(A), which provides that "Integrated production operations" include "waste, pollution and environmental control operations, if any." While the purchase of the injection equipment located at your plant is exempt under (kk), your purchase of CAP18 is exempt under a different subsection --- K.S.A. 2006 Supp. 79-3606(n). This provision exempts:

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; K.S.A. 2006 Supp. 79-3606(n).

I hope that this letter has addressed all of your questions. Please call me if you need to discuss anything further.

This is a private letter ruling pursuant to Kansas Administrative Regulation 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 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 ruling.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 07/27/2007 Date Modified: 07/27/2007

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