Is labor to install new range-land fencing subject to Kansas sales tax?

Plain-English summary

A taxpayer asked whether the labor to build new range-land fencing is subject to Kansas sales tax. They pointed to the Department's agricultural guide (KS-1550), which says labor to install fencing for a new feedlot is not taxable, and asked whether the same is true for range fencing.

The Department said no — range-fence labor is taxable. Kansas exempts labor for installing or applying tangible personal property only when it's part of the "original construction" of a building or facility under K.S.A. 79-3603(p). The statute's definition of a "facility" specifically lists a feedlot (along with mills, plants, refineries, wells, and certain cooperative transmission/distribution lines), which is why fencing labor for a new feedlot is exempt.

But open range land is neither a "building" (K.S.A. 79-3603(p)(2)) nor a "facility" (K.S.A. 79-3603(p)(3)). Because range land doesn't fit either category, the "original construction" exemption doesn't reach it, so the labor to install new range-land fencing is taxable. The distinction isn't new-versus-old fence or agricultural-versus-not — it's whether the fence is part of constructing a listed building or facility.

What this means for you

Fencing contractors and ranchers

Whether fence-installation labor is taxable depends on what the fence encloses. Labor to fence a new feedlot (a listed "facility") is exempt as original construction; labor to fence open range land is taxable. Don't assume that because feedlot fencing is exempt, all agricultural fencing is — the exemption follows the statutory list of buildings and facilities, and range land isn't on it.

Farm and ranch operators budgeting a project

Expect to pay sales tax on the labor for new range fencing. The exemption you may have heard about for feedlot fencing comes from the feedlot being a statutorily listed "facility," not from the work being agricultural.

Common questions

Q: Isn't fencing labor for original construction exempt?
A: Only when it's original construction of a building or facility listed in K.S.A. 79-3603(p). A feedlot is a listed facility; open range land is not.

Q: Why is feedlot fencing exempt but range fencing taxable?
A: The statute defines a "facility" to include a feedlot, so feedlot fencing qualifies. Range land fits neither the "building" nor "facility" definition, so its fencing labor is taxable.

Q: Does it matter that the fence is brand new?
A: Original construction is required for the exemption, but it isn't enough — the fence must also be part of a listed building or facility. New range fencing is still taxable.

Citations and references

• K.S.A. 79-3603(p) — exempts labor services for installing or applying tangible personal property when performed in connection with the "original construction" of a building or facility.
• K.S.A. 79-3603(p)(2) — defines "building" for the exemption; range land does not qualify as a building.
• K.S.A. 79-3603(p)(3) — defines "facility" (a mill, plant, refinery, oil/gas/water well, feedlot, or certain cooperative transmission/distribution lines); a feedlot qualifies, range land does not.
• KS-1550, Sales and Use Tax for the Agricultural Industry — the Department publication noting that labor to install fencing for a new feedlot is not taxable, cited by the taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2010-007

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 13, 2010

XXXXXXXXXXXXX
XXXXXX
XXXXXXXXXXX
XXXXXXXXXX

Dear Mr. XXXXXX:

We wish to acknowledge receipt of your recent inquiry regarding the application of Kansas Retailers’ Sales tax. You inquired regarding the taxability on labor services for the construction of new range land fencing.

Your question relates to the installation of new fencing (either brand new or where the old fence has been destroyed). You indicated the Department of Revenue publication titled, Sales and Use Tax for the Agricultural Industry, KS-1550 states the labor service to install fencing for new feedlots is not taxable. The question asked was if labor for the construction of new range land fencing requires the payment of sales tax.

The tax exemption for labor services involving the installation or application of tangible personal property is found in K.S.A. 79-3603(p). This statute defines labor services performed in connection with the “original construction” of a building or facility as exempt from sales tax. Section (3) of K.S.A. 79-3603(p) defines a facility as a mill, plant, refinery, oil well, gas well, water well, feedlot or any transmission of distribution line of an cooperative, nonprofit, membership corporation organized under or subject to the provisions of K.S.A. 17-4601 et seq., and amendments thereto, or of any municipal or quasi-municipal corporation.

The labor service to install fencing as a new feedlot is not taxable as a feedlot is specifically included under the definition of a facility for the purposes of exempting the labor services for “original construction”. Range land is not listed as either a building, 79-3603(p)(2) or a facility, 79-3603(p)(3). Therefore the labor services to install new range fencing is taxable for sales tax.

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.

Sincerely,

Jack Smith
Policy and Research

Date Composed: 09/13/2010 Date Modified: 09/13/2010

Table 1

Table 2