State Incentives 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).
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
- 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
- Machinery that services the production line (e.g.
machinery that purifies water, cleans oil, screens
- 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
Rebecca Bouska, Deputy City Administrator