Tax News

CCH (cch.taxgroup.com) reports:

  The Kansas State Court of Tax Appeals denied the Kansas Department of Revenue summary judgment in an action filed by a taxpayer seeking a sales tax refund under the integrated plant theory exemption for machinery and equipment (and associated repair and replacement parts) used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility. The taxpayer argued that the exemption applied with respect to repair and replacement parts for loaders and haulers that it used in its concrete manufacturing operation. The taxpayer quarried limestone on its property and used the loaders and haulers to move the limestone to its adjacent property where it crushed it and manufactured it into concrete. The department contended in its motion for summary judgment that the exemption did not apply because the excavation activities were distinct from the manufacturing activities.

  The court noted that the exemption statute includes within an "integrated production operation" preproduction operations to handle, store, and treat raw materials. In addition, the exemption statute states that machinery and equipment is 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 placement on the production line. Based on the evidence, the court declined to find as a matter of law that the loaders and haulers were not used as part of an integrated production operation.

  The court found that the term "manufacturing or processing plant or facility" means a single fixed location owned or controlled by a manufacturing or processing business that consists of one or more structures or buildings in a contiguous area where integrated production operations are conducted to manufacture tangible personal property for ultimate sale at retail. Because the evidence showed that the quarry and cement manufacturing operations were conducted on adjacent property owned by the taxpayer and not on a right-of-way or easement located on land not owned by the taxpayer, the court declined to find as a matter of law that the loaders and haulers were not primarily used by and at the taxpayer's "plant." In addition, it was irrelevant in determining the boundaries of the "plant" that the loaders and haulers might have performed extraction-related activities on a portion of the grounds where no additional processing (such as the crushing of the limestone) occurred. As a result, the court denied the department's summary judgment motion. However, the court did not enter judgment in favor of the taxpayer, as the department's motion did not address all of the exemption's statutory requirements and the taxpayer still had the burden of proving that the exemption applied.

  Subscribers can view the order denying the department's motion for summary judgment.

 
In the Matter of the Appeal of LaFarge Midwest/Martin Tractor Co., Inc. , Kansas State Court of Tax Appeals, No. 2006-8532-DT, June 4, 2009