State Tax Exemptions
Tax Exemptions for Industrial Revenue Bonds
Businesses using Industrial
Revenue Bonds (IRB's) as a financing mechanism may the following
tax exemption:
The cost of building materials and items of equipment
permanently installed are exempt from state and local sales taxes
(K.S.A.
79-3603).
Inventory Tax
Exemption
All merchants' and manufacturers' inventories have been
exempt from property taxes by constitutional amendment since
1989 (K.S.A.
79-201m).
Sales Tax Exemption
Electricity, gas, and water consumed during
manufacturing are exempt from the Kansas sales tax (K.S.A. 79-3603).
Sales
tax paid on the
purchase of machinery, equipment, and certain other tangible
property may be exempted if the applicant's business qualifies
for Job and
Investment Tax Credits and is located within a state designated
Enterprise Zone (K.S.A. 79-3606). Companies that qualify
for the High Performance Business Incentive Program are eligible
to receive
this exemption without being tied to the job creation requirement.
This exemption extends to manufacturing machinery and equipment
as well as to any quality control and pollution control
equipment installed. All sales of manufacturing machinery and equipment
are exempt from sales taxes (K.S.A. 79-3606). This exemption
extends
to machinery and equipment purchased primarily for use
in
the
assembly, processing, finishing, storing, warehousing,
or distribution of
tangible personal property intended for resale. Businesses
may take advantage of several other items exempt from sales
tax (K.S.A.
79-3606).
-
Labor and services used in original construction.
-
Tangible personal
property purchased by a railroad or public utility for consumption
or movement directly and immediately
in interstate
commerce.
-
Tangible personal property which becomes
an ingredient or component part of tangible personal property
or
services produced, manufactured,
or compounded for ultimate sale at retail either
inside or
outside of Kansas.
-
Tangible personal property
that is immediately consumed or dissipated in the actual
production, manufacturing,
processing,
mining,
drilling, refining, or compounding of tangible
personal property for ultimate
sale at retail either inside or outside Kansas.
-
Purchases
of animals, fowl, and fish primarily used in agriculture;
the production of food
for human
consumption;
the production
of animal, dairy, poultry, or fish products,
fiber, or fur; or the
production of offspring for use in any such
endeavor.
-
Tangible personal property purchased
by a city from the proceeds of industrial revenue
bonds.
The cost
of the
building and
all items of fixed equipment are entitled
to exemption from Kansas
sales
tax at the time of initial purchase. This
exemption does not extend to machinery
and equipment
that can be moved
(K.S.A. 79-3603).
-
Incoming and outgoing
interstate wide area telephone or transmission services (WATTS).
The gross receipts
from
sales of interstate
telephone or telegraph services utilizing
a WATTS line are specifically exempted
from state sales taxes (K.S.A. 79-3603).
It should be noted that a sales tax exemption
certificate
must be
obtained
from the Kansas
Department of Revenue prior to any purchases.
The one exception involves labor on original
construction,
which does not
require a certificate. The Kansas Department
of Commerce can assist
businesses in obtaining exemption certificates.
Kansas applies the "Integrated
Plant" standard to the taxation
of machinery and equipment used in production
(K.S.A. 79-3606[kk]). Adoption of the
integrated
plant standard makes it easier for the
taxpayer to interpret the
boundaries of the exemption. Traditionally,
manufacturing machinery and equipment
used in production qualified for the
tax exemption
only if they have a "direct and
immediate effect" on
the physical transformation of raw material
into new material. The integrated plant
theory is broader
and
allows for additional
machinery and equipment to qualify for
the tax exemption. Machinery such as
air conditioners,
water purifiers,
and pollution control
equipment will qualify for the tax exemption
under the integrated plant theory. The
integrated plant
theory is specifically intended
to include the following:,
-
Pre-production
machinery and equipment (e.g. raw
material storage equipment,
raw material
handling
equipment),
-
Machinery that services
the production line (e.g. machinery that purifies
water, cleans
oil, screens
chemicals),
-
Machinery that deals
with byproducts of production (e.g. pollution
control equipment,
waste
handling equipment),
-
Ancillary
property that might otherwise not be viewed as
machinery or equipment
(e.g.
gas pipes,
electric
wiring, special foundations,
clean rooms),
-
Labor services
for installation and repair of qualified
machinery or
equipment
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