Questions and Answers
HVAC Equipment Used in Manufacturing Plants
Kansas Retailers' Sales Tax
HVAC Equipment Used in Manufacturing Plants
QUESTION: What equipment is exempt as providing and controlling the environment in a special and limited area of a manufacturing plant where that environment is considered to be part of and essential to the production process?
ANSWER: The integrated production exemption does not extend to equipment or fixtures that are used for plant heating, cooling, lighting, ventilation, or cleaning. However, there is an exception for environmental control equipment that is used to regulates the environment in a special and limited area of a plant, such as a clean room or paint booth. For purposes here, "environmental control equipment" includes any heating, cooling, or air purification equipment that is engineered for and dedicated to that special and limited area.
To qualify as a special and limited area, the area must: (1) be serviced by environmental control equipment that is dedicated to that area; (2) contain a unique environment essential for a particular production step to take place and that is materially different from the environment that is maintained in the rest of the plant; and (3) be sufficiently sealed or isolated from the rest of the plant to preserve and maintain its unique environment. If an area does not meet all three requirements, the purchase of the equipment is not tax exempt. Even in an area that qualifies as being special or limited, equipment that does not regulate its unique environment, such as communication and lighting equipment, are taxable.
Examples of areas that do not qualify include but are not limited to: (1) an area that contain intake or output registers from the plant's other heating, cooling , or ventilation systems; (2) an area within a plant that is serviced by its own, dedicated HVAC equipment which does not create an environment that is materially different from that required for the rest of the plant; (3) an area operated with little or no regard for maintaining its isolation from the rest of the plant, and (4) large areas of the plant where the temperature and humidity levels are maintained to meet equipment operational requirements or maintain employee comfort parameters. This exemption does not extend to ventilation equipment that is used to create positive pressure within the plant or building.
Nothing in the law provides that a test for exemption is whether or not equipment is essential for compliance with standards fixed by OSCA, the FDA, the USDA, a Kansas regulatory authority, or some other authority, or by a government contract. Equipment that is needed to meet these standards is not exempt if the equipment fails to satisfy all three requirements for special and limited areas that are set forth in the preceding paragraphs.
QUESTION: What equipment in a plant is exempt as controlling pollution that is produced by the manufacturing process?
ANSWER: The integrated production exemption does not extend to equipment or fixtures that are used for plant heating, cooling, lighting, ventilation, or cleaning. However, there is an exception for equipment used to control pollution generated by the production process.
To qualify for this pollution control exemption, the equipment: (1) cannot be part of a plant's HVAC systems; (2) cannot be a basic part of a plant's plumbing system; (3) if the pollution is airborne, there must be a hood or an intake register located immediately adjacent to the source of the pollution; and (4) must be operated simultaneously when the dust, gas, or other airborne or waterborne pollution is being generated, since cleaning equipment is not exempt. This exemption does extend to continuously-operating exhaust equipment that is used to maintain a negative static pressure within a limited area of the plant, such as a chemical storage area or a laboratory used for product testing. "Equipment" does not include doors, windows, plumbing, or other parts of a building.
Examples of things that do not qualify as pollution control equipment or systems include, but are not limited to: (1) drains that catch runoff from the production process and other building plumbing, (2) positive pressure ventilation equipment used to create a positive pressure within the plant; (3) electrostatic equipment used in non-exempt HVAC systems; (4) portable fans or heaters used in production areas; (5) vacuums, water hoses, and other cleaning equipment; and (6) employee wash sinks, towel dispensers, and cooling fans located in the production area.
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