Private Letter Ruling

Ruling Number:P-2001-033
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Ingredients or component parts.
Approval Date:04/10/2001

Office of Policy & Research

April 10, 2001


Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated April 10, 2001, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(m) exempts from sales tax, "all sales of tangible personal property which become an ingredient or component part of tangible personal property of services produced, manufactured or compounded for ultimate sale at retail within or without the state of Kansas; and any such producer, manufacturer or compounder may obtain from the director of taxation and furnish to the supplier an exemption certificate number for tangible personal property for use as an ingredient or component part of the property or services produced, manufactured or compounded". Ingredient or component parts are items that become a part of a larger whole or finished product which will be sold to the final consumer. To be considered an ingredient or component part, the item must be: ? necessary and essential to the finished product
? be used in or on the finished product
? become a physical part of the finished product, and
? become an ingredient or compound part of property or service for retail sale. For example, fabric, thread, buttons and zippers are component parts of an item of clothing (finished product) which will be sold at retail.

Other items considered to be ingredient or component parts are not as obvious. Containers, labels and shipping cases, twine and wrapping paper may be ingredient parts. When these items are used to distribute property for sale, and are not reusable or returned to the producer or manufacturer, they qualify as ingredient parts.

(K.S.A.) 79-3602(l) provides:
The statute is interpreted by Kansas Administrative Regulation (K.A.R. 92-19-54). The regulation provides, in subsections (d), (e) and (f):
The issue you present is nearly identical to that considered by the Board of Tax Appeals (BOTA) in In The Matter Of The Appeal Of Hampel Oil Distributors, Inc. In that case, a copy of which is enclosed for your review, the BOTA stated, in Paragraph 21, Page 7:
Based on the statute, the regulation, and their interpretation by the BOTA on nearly identical facts, we must conclude it is proper for your client to pay sales tax when your client purchases the cartons.

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. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist


Date Composed: 04/12/2001 Date Modified: 10/11/2001