Private Letter Ruling

Ruling Number:P-2012-001
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Outdoor, dusk-to-dawn lighting service.
Approval Date:02/20/2012

Office of Policy and Research

February 20, 2012


Thank you for your recent letter. You work for XXXX, which is a Kansas electric utility company. XXXX offers its customers an outdoor, dusk-to-dawn lighting service.

KCC tariffs refer to the service as a “Private Area Lighting Service.” Under the tariff, charges for the service vary according to the kind and type of light used (high pressure sodium, metal halide, mercury, filament, and fluorescent and whether it is a space or flood light), the light’s wattage/lumens rating, and whether the light is affixed to an existing pole or whether XXXX is required to install a pole in order to provide the service. At night, these outdoor dusk-to-dawn lights are seen illuminating farm and ranch homesteads across the Midwest.

Customer utility bills separately list the service and the monthly service charge. As with any utility charge, a customer’s service can be terminated for repeated nonpayment of the charge. You ask how Kansas sales tax applies to charges for Private Area Lighting Service.

K.S.A. 2010 Supp. 79-3603(c) historically imposed Kansas sales tax on customer charges for electric utility service. The imposition currently reads, in parts relevant here: This imposition is unusual. Very few other state or federal taxes are imposed at a rate of 0%. This provision apparently was enacted with the belief it would avoid confusion when K.S.A. 2010 Supp. 12-191 is construed. This local retailers’ sales tax statute instructs local sales tax only applies to “transactions that are subject to the Kansas retailers’ sales tax”: An argument can be fashioned that imposing state retailers’ sales tax at the rate of 0% on certain utility services subjects charges for the service “to the Kansas retailers’ sales tax,” albeit at the rate of 0%. Because these services are subject to Kansas retailers’ sales tax at the rate of 0%, the services are also subject to local retailers’ sales tax under K.S.A. 2010 Supp. 12-191, or so goes the argument.

K.S.A. 2010 Supp. 12-189a eliminates the need to divine why retailers’ sales tax was levied on certain utility services at the state rate of 0% rate. K.S.A. 2010 Supp. 12-189a expressly imposes local sales tax charges on charges for residential and agricultural electric utility services:
The plain wording of subsection (a) imposes local sales tax on:
These statutes mean local sales tax, but not state sales tax, is imposed on a utility company’s charges to customers for electricity used in a residence for noncommercial purposes by its occupants, and on its charges for electricity sold for “agricultural use.”

K.S.A. 79-3606(n) exempts “all sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the treating of by-products or wastes derived from any such production process, the providing of services or the irrigation of crops for ultimate sale at retail within or without the state of Kansas . . . .” “Tangible personal property” is defined to include “electricity, water, gas, [and] steam.” K.S.A. 2010 Supp. 79-3602(pp).

K.S.A. 2010 Supp. 79-3602(dd) defines “[p]roperty which is consumed”:
The consumed in production exemption does not exempt electricity purchased for area lighting in buildings that house manufacturing or agricultural production operations or for area lighting out-side such buildings. K.A.R. 92-19-20 provides:

In In the Matter of the Appeals of Genesis Health Clubs, 42 Kan.App. 2d 239, 210 P.3d 663 (2009), the Kansas Court of Tax Appeals noted:

Similarly, K.S.A. 2010 Supp. 79- 3606(kk)(5)(H) provides that “[m]achinery and equipment used as an integral or essential part of an integrated production operation” shall not include “machinery or equipment used for general plant heating, cooling, and lighting.” This shows a manufacturer’s purchases of lights that provide general area lighting for its plant are not purchases of manufacturing machinery and equipment and are not exempt, just as the electricity purchased to power the area lighting is not exempt as being consumed in production.

The Kansas Board of Tax Appeals has held electricity used to power area lighting over the production area in a manufacturing plant is not exempt from Kansas sales tax because its is not consumed by equipment that is used as an integral or essential part of a integrated production operation. See In the Matter of the Appeal of Ward Kraft Forms, Inc., Order granting summary judgment, Docket No. 2005-786-DT Kansas Board of Tax Appeals (2005).

The case law, statutes, and regulations mean that XXXX's charges for “Private Area Lighting Service” are taxed either: (1) at the full, combined state and local rate in place at the light’s location (commercial use); or (2) at the city and county tax rate in place at the light’s location (residential or farm use). One or both Kansas state retailers’ sales tax or Kansas local retailers’ sales tax will always be charged for Private Area Lighting Service except:

Your letter set forth three rulings that you request KDOR to approve. KDOR does not approve them. The policies that XXXXX should apply are:

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling.

Date Composed: 02/22/2012 Date Modified: 02/22/2012