Kansas State Manufacturing Exemptions
Manufacturing Machinery and Equipment Sales Tax Exemption
• Manufacturing Machinery and Equipment Sales Tax Exemption
• Sales Tax Exemption for a Specific Project
• Utility Sales Tax Exemption
The sale of machinery and equipment (including repair and replacement parts and accessories) which is used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility is exempt from sales tax effective July 1, 2000. The installation, repair and maintenance services performed on this equipment shall also be exempt from sales tax.
The law benefits manufacturing or processing businesses. The law defines “manufacturing or processing business” as a business that utilizes an integrated production operation to manufacture, process, fabricate, finish, or assemble items for wholesale and retail distribution as part of what is commonly regarded as a industrial manufacturing or processing operation or a agricultural commodity processing operation. The exemption does not apply to retail operations or other non-industrial businesses. Retail operations and non-industrial businesses include, but are not limited to: contractors; construction companies; retail businesses that prepare food products for consumption by the buyer on or off premises; businesses that service or refurbish property that is returned to its owner, such as repair shops and machine shops; copying services, photo finishing services, and similar businesses that perform services for retail customers; telephone companies; and utility transmission and distribution operations.
Machinery and equipment shall be considered used as an integral or essential part of an integrated production operation when used to:
• receive, transport, convey, handle, treat or store raw materials in preparation of its placement on the production line;
• transport, convey, handle or store the property undergoing manufacturing or processing at any point from the beginning of the production line through any warehousing or distribution operation of the final product that occurs at the plant or facility;
• effect, promote or otherwise facilitate a physical change to the property undergoing manufacturing or processing;
• guide, control or direct the movement of property undergoing manufacturing or processing;
• test or measure raw materials, the property undergoing manufacturing or processing or the finished product, as a necessary part of the manufacturer’s integrated production operations;
• plan, manage, control, or record the receipt and flow of inventories of raw materials, consumables and component parts, the flow of the property undergoing manufacturing or processing and the management of inventories of the finished product;
• produce energy for, lubricate, control the operating of or otherwise enable the functioning of other production machinery and equipment and the continuation of production operations;
• package the property being manufactured or processed in a container or wrapping in which such property is normally sold or transported;
• 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;
• cool, heat, filter, refine or otherwise treat water, steam, acid, oil, solvents or other substances that are used in production operations;
• provide and control an environment required to maintain certain levels of air quality, humidity or temperature in special and limited areas of the plant or facility, where such regulation of temperature or humidity is part of and essential to the production process;
• treat, transport or store waste or other byproducts of production operations at the plant or facility;
• control pollution at the plant or facility where the pollution is produced by the manufacturing or processing operation.
In addition to exempting the machinery and equipment used in integrated production operation at a plant or facility, certain other items are exempt even though they are not production machinery or equipment. These include:
• computers and related peripheral equipment that are utilized by a manufacturing or processing business for engineering of the finished product or for research and development or product design;
• machinery and equipment that is utilized by a manufacturing or processing business to manufacture or rebuild tangible personal property that is used in manufacturing or processing operations, including tools, dies, molds, forms and other parts of qualifying machinery and equipment;
• portable plants for aggregate concrete, bulk cement and asphalt including cement mixing drums to be attached to a motor vehicle;
• industrial fixtures, devices, support facilities and special foundations necessary for manufacturing and production operations, and materials and other tangible personal property sold for the purpose of fabricating such fixtures, devices, facilities and foundations; and
• a manufacturing or processing business’ laboratory equipment that is not located at the plant or facility but that would otherwise qualify for exemption.
Machinery and equipment used as an integral or essential part of an integrated production operation shall NOT include:
• machinery and equipment used for nonproduction purposes, including, but not limited to, machinery and equipment used for plant security, fire prevention, first aid, accounting, administration, record keeping, advertising, marketing, sales or other related activities, plant cleaning, plant communications, and employee work scheduling;
• machinery, equipment and tools used primarily in maintaining and repairing any type of machinery and equipment or the building and plant;
• 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 related equipment located outside the plant or facility. Transportation equipment includes pipes for pipeline transmission, and equipment used to filter, purify, or otherwise condition or modify water, gas or other substances being transported by pipeline;
• office machines and equipment including computers and related peripheral equipment not used directly and primarily to control or measure the manufacturing process;
• furniture and other furnishings;
• buildings, other than exempt machinery and equipment that is permanently affixed to or becomes a physical part of the building, and any other part of real estate that is not otherwise exempt;
• building fixtures that are not integral to the manufacturing operation, such as utility systems for heating, ventilation, air conditioning, communications, plumbing or electrical;
• machinery and equipment used for general plant heating, cooling, and lighting;
• motor vehicles that are registered for operation on public highways; and
• employee apparel, except safety and protective apparel that is purchased by an employer and furnished gratuitously to employees who are involved in production or research activities.
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