State Incentives Tax Exemptions
Contact: Shane Coelho, Sr. Management Analyst 316-722-7561
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).
More detailed information on Industrial Revenue Bonds can be found under Kansas Business Finance.
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