Kansas – Manufacturer Was Entitled to Exemption

SALT Report 1444 – The Kansas Supreme Court upheld a 2009 decision in favor of a taxpayer who sought a sales tax refund under the integrated production operation exemption.  Specifically at issue was sales tax paid on the purchase of repair parts for loaders and haulers that the taxpayer used to move materials from its quarry to its hammer mills.  The Kansas Department of Revenue argued that the equipment was not exempt because it was used for excavation as well as manufacturing.
The Supreme Court rejected KDS’s argument, finding that under K.S.A. 2010 Supp. 79-3606(kk)(2)(A)  integrated production operation includes “preproduction operations to handle, store and treat raw materials.”  Furthermore, the statute provides that machinery and equipment is considered used as an integral or essential part of an integrated production operation if used “to receive, transport, convey, handle, treat or store raw materials in preparation of its placement on the production line.”
The Supreme Court also found that the taxpayer’s loaders and haulers were used at the physical location of the manufacturing facility and that the land on which any work performed by the loaders and haulers was part of “a single, contiguous, fixed location” owned by the taxpayer, as required by the exemption.  These conditions alone qualified the taxpayer as a manufacturing or processing business under the statute.  Further, the court ruled that the legislative intent behind the statute was to include taxpayers in situations where the boundaries of a manufacturing or processing facility extend further than the location immediately around the production line.
As a result, the Supreme Court upheld the decision of the Kansas Court of Tax Appeals and found that the taxpayer was entitled to the sales tax exemption under K.S.A. 2010 Supp. 79-3606(kk) for the repair and replacement parts and accessories it purchased for the loaders and haulers used at its manufacturing plant.
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