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11  AN ACT relating to sales taxation; exempting certain sales of food there-
12    from; amending K.S.A. 1996 Supp. 79-3606 and repealing the existing
13    section.
14
15  Be it enacted by the Legislature of the State of Kansas:
16    Section 1.  K.S.A. 1996 Supp. 79-3606 is hereby amended to read as
17  follows: 79-3606. The following shall be exempt from the tax imposed by
18  this act:
19    (a)  All sales of motor-vehicle fuel or other articles upon which a sales
20  or excise tax has been paid, not subject to refund, under the laws of this
21  state except cigarettes as defined by K.S.A. 79-3301 and amendments
22  thereto, cereal malt beverages and malt products as defined by K.S.A. 79-
23  3817 and amendments thereto, including wort, liquid malt, malt syrup
24  and malt extract, which is not subject to taxation under the provisions of
25  K.S.A. 79-41a02 and amendments thereto, and motor vehicles as defined
26  by K.S.A. 79-1017 and amendments thereto;
27    (b)  all sales of tangible personal property or service, including the
28  renting and leasing of tangible personal property, purchased directly by
29  the state of Kansas, a political subdivision thereof, other than a school or
30  educational institution, or purchased by a public or private nonprofit hos-
31  pital or nonprofit blood, tissue or organ bank and used exclusively for
32  state, political subdivision, hospital or nonprofit blood, tissue or organ
33  bank purposes, except when: (1) Such state or hospital is engaged or
34  proposes to engage in any business specifically taxable under the provi-
35  sions of this act and such items of tangible personal property or service
36  are used or proposed to be used in such business, or (2) such political
37  subdivision is engaged or proposes to engage in the business of furnishing
38  gas, water, electricity or heat to others and such items of personal prop-
39  erty or service are used or proposed to be used in such business;
40    (c)  all sales of tangible personal property or services, including the
41  renting and leasing of tangible personal property, purchased directly by
42  a public or private elementary or secondary school or public or private
43  nonprofit educational institution and used primarily by such school or
HB 2293
                                     

 1  institution for nonsectarian programs and activities provided or sponsored
 2  by such school or institution or in the erection, repair or enlargement of
 3  buildings to be used for such purposes. The exemption herein provided
 4  shall not apply to erection, construction, repair, enlargement or equip-
 5  ment of buildings used primarily for human habitation;
 6    (d)  all sales of tangible personal property or services purchased by a
 7  contractor for the purpose of constructing, equipping, reconstructing,
 8  maintaining, repairing, enlarging, furnishing or remodeling facilities for
 9  any public or private nonprofit hospital, public or private elementary or
10  secondary school or a public or private nonprofit educational institution,
11  which would be exempt from taxation under the provisions of this act if
12  purchased directly by such hospital, school or educational institution; and
13  all sales of tangible personal property or services purchased by a contrac-
14  tor for the purpose of constructing, equipping, reconstructing, maintain-
15  ing, repairing, enlarging, furnishing or remodeling facilities for any polit-
16  ical subdivision of the state, the total cost of which is paid from funds of
17  such political subdivision and which would be exempt from taxation under
18  the provisions of this act if purchased directly by such political subdivision.
19  Nothing in this subsection or in the provisions of K.S.A. 12-3418 and
20  amendments thereto, shall be deemed to exempt the purchase of any
21  construction machinery, equipment or tools used in the constructing,
22  equipping, reconstructing, maintaining, repairing, enlarging, furnishing
23  or remodeling facilities for any political subdivision of the state. As used
24  in this subsection, K.S.A. 12-3418 and 79-3640, and amendments thereto,
25  ``funds of a political subdivision'' shall mean general tax revenues, the
26  proceeds of any bonds and gifts or grants-in-aid. Gifts shall not mean
27  funds used for the purpose of constructing, equipping, reconstructing,
28  repairing, enlarging, furnishing or remodeling facilities which are to be
29  leased to the donor. When any political subdivision of the state, public or
30  private nonprofit hospital, public or private elementary or secondary
31  school or public or private nonprofit educational institution shall contract
32  for the purpose of constructing, equipping, reconstructing, maintaining,
33  repairing, enlarging, furnishing or remodeling facilities, it shall obtain
34  from the state and furnish to the contractor an exemption certificate for
35  the project involved, and the contractor may purchase materials for in-
36  corporation in such project. The contractor shall furnish the number of
37  such certificate to all suppliers from whom such purchases are made, and
38  such suppliers shall execute invoices covering the same bearing the num-
39  ber of such certificate. Upon completion of the project the contractor
40  shall furnish to the political subdivision, hospital, school or educational
41  institution concerned a sworn statement, on a form to be provided by the
42  director of taxation, that all purchases so made were entitled to exemption
43  under this subsection. All invoices shall be held by the contractor for a
HB 2293
                                     

 1  period of five years and shall be subject to audit by the director of taxation.
 2  If any materials purchased under such a certificate are found not to have
 3  been incorporated in the building or other project or not to have been
 4  returned for credit or the sales or compensating tax otherwise imposed
 5  upon such materials which will not be so incorporated in the building or
 6  other project reported and paid by such contractor to the director of
 7  taxation not later than the 20th day of the month following the close of
 8  the month in which it shall be determined that such materials will not be
 9  used for the purpose for which such certificate was issued, the political
10  subdivision, hospital, school or educational institution concerned shall be
11  liable for tax on all materials purchased for the project, and upon payment
12  thereof it may recover the same from the contractor together with rea-
13  sonable attorney fees. Any contractor or any agent, employee or subcon-
14  tractor thereof, who shall use or otherwise dispose of any materials pur-
15  chased under such a certificate for any purpose other than that for which
16  such a certificate is issued without the payment of the sales or compen-
17  sating tax otherwise imposed upon such materials, shall be guilty of a
18  misdemeanor and, upon conviction therefor, shall be subject to the pen-
19  alties provided for in subsection (g) of K.S.A. 79-3615, and amendments
20  thereto;
21    (e)  all sales of tangible personal property or services purchased by a
22  contractor for the erection, repair or enlargement of buildings or other
23  projects for the government of the United States, its agencies or instru-
24  mentalities, which would be exempt from taxation if purchased directly
25  by the government of the United States, its agencies or instrumentalities.
26  When the government of the United States, its agencies or instrumen-
27  talities shall contract for the erection, repair, or enlargement of any build-
28  ing or other project, it shall obtain from the state and furnish to the
29  contractor an exemption certificate for the project involved, and the con-
30  tractor may purchase materials for incorporation in such project. The
31  contractor shall furnish the number of such certificates to all suppliers
32  from whom such purchases are made, and such suppliers shall execute
33  invoices covering the same bearing the number of such certificate. Upon
34  completion of the project the contractor shall furnish to the government
35  of the United States, its agencies or instrumentalities concerned a sworn
36  statement, on a form to be provided by the director of taxation, that all
37  purchases so made were entitled to exemption under this subsection. All
38  invoices shall be held by the contractor for a period of five years and shall
39  be subject to audit by the director of taxation. Any contractor or any agent,
40  employee or subcontractor thereof, who shall use or otherwise dispose of
41  any materials purchased under such a certificate for any purpose other
42  than that for which such a certificate is issued without the payment of
43  the sales or compensating tax otherwise imposed upon such materials,
HB 2293
                                     

 1  shall be guilty of a misdemeanor and, upon conviction therefor, shall be
 2  subject to the penalties provided for in subsection (g) of K.S.A. 79-3615
 3  and amendments thereto;
 4    (f)  tangible personal property purchased by a railroad or public utility
 5  for consumption or movement directly and immediately in interstate
 6  commerce;
 7    (g)  sales of aircraft including remanufactured and modified aircraft,
 8  sales of aircraft repair, modification and replacement parts and sales of
 9  services employed in the remanufacture, modification and repair of air-
10  craft sold to persons using such aircraft and aircraft repair, modification
11  and replacement parts as certified or licensed carriers of persons or prop-
12  erty in interstate or foreign commerce under authority of the laws of the
13  United States or any foreign government or sold to any foreign govern-
14  ment or agency or instrumentality of such foreign government and all
15  sales of aircraft, aircraft parts, replacement parts and services employed
16  in the remanufacture, modification and repair of aircraft for use outside
17  of the United States;
18    (h)  all rentals of nonsectarian textbooks by public or private elemen-
19  tary or secondary schools;
20    (i)  the lease or rental of all films, records, tapes, or any type of sound
21  or picture transcriptions used by motion picture exhibitors;
22    (j)  meals served without charge or food used in the preparation of
23  such meals to employees of any restaurant, eating house, dining car, hotel,
24  drugstore or other place where meals or drinks are regularly sold to the
25  public if such employees' duties are related to the furnishing or sale of
26  such meals or drinks;
27    (k)  any motor vehicle, semitrailer or pole trailer, as such terms are
28  defined by K.S.A. 8-126 and amendments thereto, or aircraft sold and
29  delivered in this state to a bona fide resident of another state, which motor
30  vehicle, semitrailer, pole trailer or aircraft is not to be registered or based
31  in this state and which vehicle, semitrailer, pole trailer or aircraft will not
32  remain in this state more than 10 days;
33    (l)  all isolated or occasional sales of tangible personal property, serv-
34  ices, substances or things, except isolated or occasional sale of motor
35  vehicles specifically taxed under the provisions of subsection (o) of K.S.A.
36  79-3603 and amendments thereto;
37    (m)  all sales of tangible personal property which become an ingre-
38  dient or component part of tangible personal property or services pro-
39  duced, manufactured or compounded for ultimate sale at retail within or
40  without the state of Kansas; and any such producer, manufacturer or
41  compounder may obtain from the director of taxation and furnish to the
42  supplier an exemption certificate number for tangible personal property
43  for use as an ingredient or component part of the property or services
HB 2293
                                     

 1  produced, manufactured or compounded;
 2    (n)  all sales of tangible personal property which is consumed in the
 3  production, manufacture, processing, mining, drilling, refining or com-
 4  pounding of tangible personal property, the treating of by-products or
 5  wastes derived from any such production process, the providing of serv-
 6  ices or the irrigation of crops for ultimate sale at retail within or without
 7  the state of Kansas; and any purchaser of such property may obtain from
 8  the director of taxation and furnish to the supplier an exemption certifi-
 9  cate number for tangible personal property for consumption in such pro-
10  duction, manufacture, processing, mining, drilling, refining, compound-
11  ing, treating, irrigation and in providing such services;
12    (o)  all sales of animals, fowl and aquatic plants and animals, the pri-
13  mary purpose of which is use in agriculture or aquaculture, as defined in
14  K.S.A. 47-1901, and amendments thereto, the production of food for
15  human consumption, the production of animal, dairy, poultry or aquatic
16  plant and animal products, fiber or fur, or the production of offspring for
17  use for any such purpose or purposes;
18    (p)  all sales of drugs, as defined by K.S.A. 65-1626 and amendments
19  thereto, dispensed pursuant to a prescription order, as defined by K.S.A.
20  65-1626 and amendments thereto, by a licensed practitioner;
21    (q)  all sales of insulin dispensed by a person licensed by the state
22  board of pharmacy to a person for treatment of diabetes at the direction
23  of a person licensed to practice medicine by the board of healing arts;
24    (r)  all sales of prosthetic and orthopedic appliances prescribed in
25  writing by a person licensed to practice the healing arts, dentistry or
26  optometry. For the purposes of this subsection, the term prosthetic and
27  orthopedic appliances means any apparatus, instrument, device, or equip-
28  ment used to replace or substitute for any missing part of the body; used
29  to alleviate the malfunction of any part of the body; or used to assist any
30  disabled person in leading a normal life by facilitating such person's mo-
31  bility; such term shall include accessories to be attached to motor vehicles,
32  but such term shall not include motor vehicles or personal property which
33  when installed becomes a fixture to real property;
34    (s)  all sales of tangible personal property or services purchased di-
35  rectly by a groundwater management district organized or operating un-
36  der the authority of K.S.A. 82a-1020 et seq. and amendments thereto,
37  which property or services are used in the operation or maintenance of
38  the district;
39    (t)  all sales of farm machinery and equipment or aquaculture ma-
40  chinery and equipment, repair and replacement parts therefor and serv-
41  ices performed in the repair and maintenance of such machinery and
42  equipment. For the purposes of this subsection the term ``farm machinery
43  and equipment or aquaculture machinery and equipment'' shall include
HB 2293
                                     

 1  machinery and equipment used in the operation of Christmas tree farm-
 2  ing but shall not include any passenger vehicle, truck, truck tractor, trailer,
 3  semitrailer or pole trailer, other than a farm trailer, as such terms are
 4  defined by K.S.A. 8-126 and amendments thereto. Each purchaser of
 5  farm machinery and equipment or aquaculture machinery and equipment
 6  exempted herein must certify in writing on the copy of the invoice or
 7  sales ticket to be retained by the seller that the farm machinery and
 8  equipment or aquaculture machinery and equipment purchased will be
 9  used only in farming, ranching or aquaculture production. Farming or
10  ranching shall include the operation of a feedlot and farm and ranch work
11  for hire and the operation of a nursery;
12    (u)  all leases or rentals of tangible personal property used as a dwell-
13  ing if such tangible personal property is leased or rented for a period of
14  more than 28 consecutive days;
15    (v)  all sales of food products to any contractor for use in preparing
16  meals for delivery to homebound elderly persons over 60 years of age and
17  to homebound disabled persons or to be served at a group-sitting at a
18  location outside of the home to otherwise homebound elderly persons
19  over 60 years of age and to otherwise homebound disabled persons, as
20  all or part of any food service project funded in whole or in part by
21  government or as part of a private nonprofit food service project available
22  to all such elderly or disabled persons residing within an area of service
23  designated by the private nonprofit organization, and all sales of food
24  products for use in preparing meals for consumption by indigent or home-
25  less individuals whether or not such meals are consumed at a place des-
26  ignated for such purpose;
27    (w)  all sales of natural gas, electricity, heat and water delivered
28  through mains, lines or pipes: (1) To residential premises for noncom-
29  mercial use by the occupant of such premises; (2) for agricultural use and
30  also, for such use, all sales of propane gas; (3) for use in the severing of
31  oil; and (4) to any property which is exempt from property taxation pur-
32  suant to K.S.A. 79-201b Second through Sixth.  As used in this paragraph,
33  ``severing'' shall have the meaning ascribed thereto by subsection (k) of
34  K.S.A. 79-4216, and amendments thereto;
35    (x)  all sales of propane gas, LP-gas, coal, wood and other fuel sources
36  for the production of heat or lighting for noncommercial use of an oc-
37  cupant of residential premises;
38    (y)  all sales of materials and services used in the repairing, servicing,
39  altering, maintaining, manufacturing, remanufacturing, or modification of
40  railroad rolling stock for use in interstate or foreign commerce under
41  authority of the laws of the United States;
42    (z)  all sales of tangible personal property and services purchased di-
43  rectly by a port authority or by a contractor therefor as provided by the
HB 2293
                                     

 1  provisions of K.S.A. 12-3418 and amendments thereto;
 2    (aa)  all sales of materials and services applied to equipment which is
 3  transported into the state from without the state for repair, service, al-
 4  teration, maintenance, remanufacture or modification and which is sub-
 5  sequently transported outside the state for use in the transmission of
 6  liquids or natural gas by means of pipeline in interstate or foreign com-
 7  merce under authority of the laws of the United States;
 8    (bb)  all sales of used mobile homes or manufactured homes. As used
 9  in this subsection: (1) ``Mobile homes'' and ``manufactured homes'' shall
10  have the meanings ascribed thereto by K.S.A. 58-4202 and amendments
11  thereto; and (2) ``sales of used mobile homes or manufactured homes''
12  means sales other than the original retail sale thereof;
13    (cc)  all sales of tangible personal property or services purchased for
14  the purpose of and in conjunction with constructing, reconstructing, en-
15  larging or remodeling a business or retail business which meets the
16  requirements established in K.S.A. 74-50,115 and amendments thereto,
17  and the sale and installation of machinery and equipment purchased for
18  installation at any such business or retail business. When a person shall
19  contract for the construction, reconstruction, enlargement or remodeling
20  of any such business or retail business, such person shall obtain from the
21  state and furnish to the contractor an exemption certificate for the project
22  involved, and the contractor may purchase materials, machinery and
23  equipment for incorporation in such project. The contractor shall furnish
24  the number of such certificates to all suppliers from whom such purchases
25  are made, and such suppliers shall execute invoices covering the same
26  bearing the number of such certificate. Upon completion of the project
27  the contractor shall furnish to the owner of the business or retail business
28  a sworn statement, on a form to be provided by the director of taxation,
29  that all purchases so made were entitled to exemption under this subsec-
30  tion. All invoices shall be held by the contractor for a period of five years
31  and shall be subject to audit by the director of taxation. Any contractor
32  or any agent, employee or subcontractor thereof, who shall use or oth-
33  erwise dispose of any materials, machinery or equipment purchased un-
34  der such a certificate for any purpose other than that for which such a
35  certificate is issued without the payment of the sales or compensating tax
36  otherwise imposed thereon, shall be guilty of a misdemeanor and, upon
37  conviction therefor, shall be subject to the penalties provided for in sub-
38  section (g) of K.S.A. 79-3615 and amendments thereto. As used in this
39  subsection, ``business'' and ``retail business'' have the meanings respec-
40  tively ascribed thereto by K.S.A. 74-50,114 and amendments thereto;
41    (dd)  all sales of tangible personal property purchased with food
42  stamps issued by the United States department of agriculture;
43    (ee)  all sales of lottery tickets and shares made as part of a lottery
HB 2293
                                     

 1  operated by the state of Kansas;
 2    (ff)  on and after July 1, 1988, all sales of new mobile homes or man-
 3  ufactured homes to the extent of 40% of the gross receipts, determined
 4  without regard to any trade-in allowance, received from such sale. As used
 5  in this subsection, ``mobile homes'' and ``manufactured homes'' shall have
 6  the meanings ascribed thereto by K.S.A. 58-4202 and amendments
 7  thereto;
 8    (gg)  all sales of tangible personal property purchased in accordance
 9  with vouchers issued pursuant to the federal special supplemental food
10  program for women, infants and children;
11    (hh)  all sales of medical supplies and equipment purchased directly
12  by a nonprofit skilled nursing home or nonprofit intermediate nursing
13  care home, as defined by K.S.A. 39-923, and amendments thereto, for
14  the purpose of providing medical services to residents thereof. This ex-
15  emption shall not apply to tangible personal property customarily used
16  for human habitation purposes;
17    (ii)  all sales of tangible personal property purchased directly by a non-
18  profit organization for nonsectarian comprehensive multidiscipline youth
19  development programs and activities provided or sponsored by such or-
20  ganization. This exemption shall not apply to tangible personal property
21  customarily used for human habitation purposes;
22    (jj)  all sales of tangible personal property or services, including the
23  renting and leasing of tangible personal property, purchased directly on
24  behalf of a community-based mental retardation facility or mental health
25  center organized pursuant to K.S.A. 19-4001 et seq., and amendments
26  thereto, and licensed in accordance with the provisions of K.S.A. 75-
27  3307b and amendments thereto. This exemption shall not apply to tan-
28  gible personal property customarily used for human habitation purposes;
29    (kk)  on and after January 1, 1989, all sales of machinery and equip-
30  ment used directly and primarily for the purposes of manufacturing, as-
31  sembling, processing, finishing, storing, warehousing or distributing ar-
32  ticles of tangible personal property in this state intended for resale by a
33  manufacturing or processing plant or facility or a storage, warehousing or
34  distribution facility:
35    (1)  For purposes of this subsection, machinery and equipment shall
36  be deemed to be used directly and primarily in the manufacture, assem-
37  blage, processing, finishing, storing, warehousing or distributing of tan-
38  gible personal property where such machinery and equipment is used
39  during a manufacturing, assembling, processing or finishing, storing,
40  warehousing or distributing operation:
41    (A) To effect a direct and immediate physical change upon the tangible
42  personal property;
43    (B)  to guide or measure a direct and immediate physical change upon
HB 2293
                                     

 1  such property where such function is an integral and essential part of
 2  tuning, verifying or aligning the component parts of such property;
 3    (C)  to test or measure such property where such function is an in-
 4  tegral part of the production flow or function;
 5    (D)  to transport, convey or handle such property during the manu-
 6  facturing, processing, storing, warehousing or distribution operation at
 7  the plant or facility; or
 8    (E)  to place such property in the container, package or wrapping in
 9  which such property is normally sold or transported.
10    (2)  For purposes of this subsection ``machinery and equipment used
11  directly and primarily'' shall include, but not be limited to:
12    (A)  Mechanical machines or major components thereof contributing
13  to a manufacturing, assembling or finishing process;
14    (B)  molds and dies that determine the physical characteristics of the
15  finished product or its packaging material;
16    (C)  testing equipment to determine the quality of the finished prod-
17  uct;
18    (D)  computers and related peripheral equipment that directly control
19  or measure the manufacturing process or which are utilized for engi-
20  neering of the finished product; and
21    (E)  computers and related peripheral equipment utilized for research
22  and development and product design.
23    (3)  ``Machinery and equipment used directly and primarily'' shall not
24  include:
25    (A)  Hand tools;
26    (B)  machinery, equipment and tools used in maintaining and repair-
27  ing any type of machinery and equipment;
28    (C)  transportation equipment not used in the manufacturing, assem-
29  bling, processing, furnishing, storing, warehousing or distributing process
30  at the plant or facility;
31    (D)  office machines and equipment including computers and related
32  peripheral equipment not directly and primarily used in controlling or
33  measuring the manufacturing process;
34    (E)  furniture and buildings; and
35    (F)  machinery and equipment used in administrative, accounting,
36  sales or other such activities of the business;
37    (ll)  all sales of educational materials purchased for distribution to the
38  public at no charge by a nonprofit corporation organized for the purpose
39  of encouraging, fostering and conducting programs for the improvement
40  of public health;
41    (mm)  all sales of seeds and tree seedlings; fertilizers, insecticides,
42  herbicides, germicides, pesticides and fungicides; and services, purchased
43  and used for the purpose of producing plants in order to prevent soil
HB 2293
                                     

 1  erosion on land devoted to agricultural use;
 2    (nn)  except as otherwise provided in this act, all sales of services ren-
 3  dered by an advertising agency or licensed broadcast station or any mem-
 4  ber, agent or employee thereof;
 5    (oo)  all sales of tangible personal property purchased by a community
 6  action group or agency for the exclusive purpose of repairing or weath-
 7  erizing housing occupied by low income individuals;
 8    (pp)  all sales of drill bits and explosives actually utilized in the explo-
 9  ration and production of oil or gas;
10    (qq)  all sales of tangible personal property and services purchased by
11  a nonprofit museum or historical society or any combination thereof, in-
12  cluding a nonprofit organization which is organized for the purpose of
13  stimulating public interest in the exploration of space by providing edu-
14  cational information, exhibits and experiences, which is exempt from fed-
15  eral income taxation pursuant to section 501(c)(3) of the federal internal
16  revenue code of 1986;
17    (rr)  all sales of tangible personal property which will admit the pur-
18  chaser thereof to any annual event sponsored by a nonprofit organization
19  which is exempt from federal income taxation pursuant to section
20  501(c)(3) of the federal internal revenue code of 1986;
21    (ss)  all sales of tangible personal property and services purchased by
22  a public broadcasting station licensed by the federal communications
23  commission as a noncommercial educational television or radio station;
24  and
25    (tt)  all sales of tangible personal property and services purchased by
26  or on behalf of a not-for-profit corporation which is exempt from federal
27  income taxation pursuant to section 501(c)(3) of the federal internal rev-
28  enue code of 1986, for the sole purpose of constructing a Kansas Korean
29  War memorial; and
30    (uu)  all sales of food for human consumption by an organization
31  which is exempt from federal income taxation pursuant to section 501 (c)
32    (3) of the federal internal revenue code of 1986, pursuant to a food dis-
33  tribution program which offers such food at a price below cost in exchange
34  for the performance of community service by the purchaser thereof.
35    Sec. 2.  K.S.A. 1996 Supp. 79-3606 is hereby repealed.
36    Sec. 3.  This act shall take effect and be in force from and after its
37  publication in the statute book.