Ch. 185             1997 Session Laws of Kansas             1503

An Act relating to sales taxation; amending K.S.A. 12-1693 and 12-1697 and K.S.A. 1996
Supp. 12-188, 12-1692, 12-1696, 79-3603 and 79-3606, as amended by section 32 of
1997 House Bill No. 2105, and repealing the existing sections.

Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 1996 Supp. 12-188 is hereby amended to read as
follows: 12-188. The following classes of cities are hereby established for
the purpose of imposing limitations and prohibitions upon the levying of
sales and excise taxes or taxes in the nature of an excise upon sales or
transfers of personal or real property or the use thereof, or the rendering
or furnishing of services by cities as authorized and provided by article
12, section 5, of the constitution of the state of Kansas:

Class A cities. All cities in the state of Kansas which have the authority
to levy and collect excise taxes or taxes in the nature of an excise upon
the sales or transfers of personal or real property or the use thereof, or
the rendering or furnishing of services by cities.

Class B cities. All cities in the state of Kansas having a population of
more than 1,000 but less than 2,000 located in a county having a popu-
lation of more than 150,000 but less than 175,000 which has the authority
to levy and collect excise taxes or taxes in the nature of an excise upon
the sales or transfers of personal or real property or the use thereof, or
the rendering or furnishing of services.

Class C cities. All cities in the state of Kansas having a population of
more than 290,000 located in a county having a population of more than
350,000 which has the authority to levy and collect excise taxes or taxes

1504             1997 Session Laws of Kansas             Ch. 185

in the nature of an excise upon the sales or transfers of personal or real
property or the use thereof, or the rendering or furnishing of services.

Class D cities. All cities in the state of Kansas located in Cowley, Ellis,
Ellsworth, Labette or Montgomery county or in both Riley and
Pottawatomie counties which have the authority to levy and collect excise
taxes or taxes in the nature of an excise upon the sales or transfers of
personal or real property or the use thereof, or the rendering or furnishing
of services.

Sec. 2. K.S.A. 1996 Supp. 12-1692 is hereby amended to read as
follows: 12-1692. As used in this act, the following words and phrases
shall have the meanings respectively ascribed to them herein:

(a) ``Person'' means an individual, firm, partnership, corporation, joint
venture or other association of persons;

(b) ``Hotel, motel or tourist court'' means any structure or building
which contains rooms furnished for the purposes of providing lodging,
which may or may not also provide meals, entertainment or various other
personal services to transient guests, and which is kept, used, maintained,
advertised or held out to the public as a place where sleeping accom-
modations are sought for pay or compensation by transient or permanent
guests and having more than two bedrooms furnished for the accom-
modation of such guests;

(c) ``Transient guest'' means a person who occupies a room in a hotel,
motel or tourist court for not more than 28 consecutive days;

(d) ``Business'' means any person engaged in the business of renting,
leasing or letting living quarters, sleeping accommodations, rooms or a
part thereof in connection with any motel, hotel or tourist court; and

(e) ``Convention and tourism promotion'' means: (1) Activities to at-
tract visitors into the community through marketing efforts, including
advertising, directed to at least one of the five basic convention and tour-
ism market segments consisting of group tours, pleasure travelers, asso-
ciation meetings and conventions, trade shows and corporate meetings
and travel; and (2) support of those activities and organizations which
encourage increased lodging facility occupancy.; and

(f) ``Accommodations broker'' means any business which maintains
an inventory of two or more rooms in one or more locations which are
offered for pay to a person or persons for not more than 28 consecutive
days.

Sec. 3. K.S.A. 12-1693 is hereby amended to read as follows: 12-
1693. (a) In order to provide revenues to promote tourism and conven-
tions, the governing body of any county having a population of more than
300,000 or the governing body of any city, all or any portion of which is
located within such county, is hereby authorized to levy a transient guest
tax at not to exceed the rate of 2% upon the gross receipts derived from
or paid directly or through an accommodations broker by transient guests

Ch. 185             1997 Session Laws of Kansas             1505

for sleeping accommodations in any hotel, motel or tourist court. The
percentage of such tax shall be determined by the governing body levying
the same and shall be specified in the resolution authorizing the same.

(b) Any transient guest tax levied pursuant to this section shall be
based on the gross rental receipts collected by any business or accom-
modations broker.

(c) The taxes levied pursuant to this section shall be paid by the con-
sumer or user to the business and it shall be the duty of each and every
business to collect from the consumer or user the full amount of any such
tax, or an amount equal as nearly as possible or practicable to the average
equivalent thereto. Each business collecting any of the taxes levied here-
under shall be responsible for paying over the same to the state depart-
ment of revenue in the manner prescribed by K.S.A. 12-1694, and amend-
ments thereto, and the state department of revenue shall administer and
enforce the collection of such taxes.

(d) A transient guest tax authorized by this section shall not be levied
until:

(1) The governing body of such county has either passed, or has re-
ceived from the governing body of any city within such county, a reso-
lution calling for an election for approval by the qualified electors of a
transient guest tax;

(2) the governing body of the county has notified all of the incorpo-
rated cities, all or any portion of which are located within such county, of
the intent to call such election. Incorporated cities, all or any portion of
which are located within such county, shall have the option to decline
participation in such election within 30 days of the date of such notifi-
cation. The governing body of the county shall have the option to decline
participation in such election within the same 30 day period as provided
to incorporated cities, in which case individual cities may hold separate
elections to submit the proposition to the qualified electors of such city
and such propositions, if approved, would have force only in cities adopt-
ing the tax. If the governing body of the county resolves to participate in
such election, it shall submit such proposition for approval by the qualified
electors of the unincorporated portions of such county and all incorpo-
rated cities within such county which have not declined participation in
the election; and

(3) the governing body of the county or, if the county declines to hold
such election, the governing body of the city, has given notice of its in-
tention to submit any such proposition for approval by the qualified elec-
tors in the manner required by K.S.A. 10-120, and amendments thereto,
for giving notice of elections for the issuance of bonds. The notice shall
state the time of the election and the rate and effective date of the pro-
posed tax. If a majority of the votes cast and counted on any such prop-
osition are not in favor thereof, such proposition may be resubmitted
under the conditions and in the manner provided herein. If a majority of

1506             1997 Session Laws of Kansas             Ch. 185

the votes cast and counted on any such proposition are in favor thereof,
the governing body of the county or city shall provide by resolution for
the levy of such tax. Any repeal of such tax or any reduction or increase
in the rate thereof shall be accomplished in the manner provided herein
for the adoption and approval of such tax.

(e) The collection of any county transient guest tax authorized at a
primary or general election or a transient guest tax levied by a city au-
thorized at a city primary or general election shall commence on the first
day of the calendar quarter next following the 30th day after the date of
the election authorizing the levy of such tax. The collection of any tran-
sient guest tax of a county or city approved at any other election shall
commence on the first day of the calendar quarter next following the 60th
day after the date of the election authorizing the levy of such tax.

Sec. 4. K.S.A. 1996 Supp. 12-1696 is hereby amended to read as
follows: 12-1696. As used in this act, the following words and phrases
shall have the meanings respectively ascribed to them herein:

(a) ``Person'' means an individual, firm, partnership, corporation, joint
venture or other association of persons;

(b) ``Hotel, motel or tourist court'' means any structure or building
which contains rooms furnished for the purposes of providing lodging,
which may or may not also provide meals, entertainment or various other
personal services to transient guests, and which is kept, used, maintained,
advertised or held out to the public as a place where sleeping accom-
modations are sought for pay or compensation by transient or permanent
guests and having more than two bedrooms furnished for the accom-
modation of such guests;

(c) ``Transient guest'' means a person who occupies a room in a hotel,
motel or tourist court for not more than 28 consecutive days;

(d) ``Business'' means any person engaged in the business of renting,
leasing or letting living quarters, sleeping accommodations, rooms or a
part thereof in connection with any motel, hotel or tourist court; and

(e) ``Convention and tourism promotion'' means: (1) Activities to at-
tract visitors into the community through marketing efforts, including
advertising, directed to at least one of the five basic convention and tour-
ism market segments consisting of group tours, pleasure travelers, asso-
ciation meetings and conventions, trade shows and corporate meetings
and travel; and (2) support of those activities and organizations which
encourage increased lodging facility occupancy.; and

(f) ``Accommodations broker'' means any business which maintains
an inventory of two or more rooms in one or more locations which are
offered for pay to a person or persons for not more than 28 consecutive
days.

Sec. 5. K.S.A. 12-1697 is hereby amended to read as follows: 12-
1697. (a) In order to provide revenues to promote tourism and conven-

Ch. 185             1997 Session Laws of Kansas             1507

tions, the governing body of any county or the governing body of any city
is hereby authorized to levy a transient guest tax at not to exceed the rate
of 2% upon the gross receipts derived from or paid directly or through
an accommodations broker by transient guests for sleeping accommoda-
tions, exclusive of charges for incidental services or facilities, in any hotel,
motel or tourist court. The percentage of such tax shall be determined
by the board of county commissioners or the city governing body and
shall be specified in the resolution or ordinance authorizing the same.

(b) Any transient guest tax levied pursuant to this section shall be
based on the gross rental receipts collected by any business or accom-
modations broker.

(c) The taxes levied pursuant to this section shall be paid by the con-
sumer or user to the business and it shall be the duty of each and every
business to collect from the consumer or user the full amount of any such
tax, or an amount equal as nearly as possible or practicable to the average
equivalent thereto. Each business collecting any of the taxes levied here-
under shall be responsible for paying over the same to the state depart-
ment of revenue in the manner prescribed by K.S.A. 12-1698, and amend-
ments thereto, and the state department of revenue shall administer and
enforce the collection of such taxes.

(d) A transient guest tax authorized by this section shall not be levied
until the governing body of such county or city has passed a resolution or
ordinance authorizing the same.

(e) The collection of any county or city transient guest tax authorized
to be levied pursuant to this section shall commence on the first day of
the calendar quarter next following the 30th day after the date of the
receipt by the department of revenue of the resolution or ordinance au-
thorizing the levy of such tax.

Sec. 6. K.S.A. 1996 Supp. 79-3603 is hereby amended to read as
follows: 79-3603. For the privilege of engaging in the business of selling
tangible personal property at retail in this state or rendering or furnishing
any of the services taxable under this act, there is hereby levied and there
shall be collected and paid a tax at the rate of 4.9%:

(a) The gross receipts received from the sale of tangible personal
property at retail within this state;

(b) (1) the gross receipts from intrastate telephone or telegraph serv-
ices and (2) the gross receipts received from the sale of interstate tele-
phone or telegraph services, which (A) originate within this state and
terminate outside the state and are billed to a customer's telephone num-
ber or account in this state; or (B) originate outside this state and ter-
minate within this state and are billed to a customer's telephone number
or account in this state except that the sale of interstate telephone or
telegraph service does not include: (A) Any interstate incoming or out-
going wide area telephone service or wide area transmission type service

1508             1997 Session Laws of Kansas             Ch. 185

which entitles the subscriber to make or receive an unlimited number of
communications to or from persons having telephone service in a speci-
fied area which is outside the state in which the station provided this
service is located; (B) any interstate private communications service to
the persons contracting for the receipt of that service that entitles the
purchaser to exclusive or priority use of a communications channel or
group of channels between exchanges; (C) any value-added nonvoice
service in which computer processing applications are used to act on the
form, content, code or protocol of the information to be transmitted; (D)
any telecommunication service to a provider of telecommunication serv-
ices which will be used to render telecommunications services, including
carrier access services; or (E) any service or transaction defined in this
section among entities classified as members of an affiliated group as
provided by federal law (U.S.C. Section 1504);

(c) the gross receipts from the sale or furnishing of gas, water, elec-
tricity and heat, which sale is not otherwise exempt from taxation under
the provisions of this act, and whether furnished by municipally or pri-
vately owned utilities;

(d) the gross receipts from the sale of meals or drinks furnished at
any private club, drinking establishment, catered event, restaurant, eating
house, dining car, hotel, drugstore or other place where meals or drinks
are regularly sold to the public;

(e) the gross receipts from the sale of admissions to any place pro-
viding amusement, entertainment or recreation services including admis-
sions to state, county, district and local fairs, but such tax shall not be
levied and collected upon the gross receipts received from sales of ad-
missions to any cultural and historical event which occurs triennially;

(f) the gross receipts from the operation of any coin-operated device
dispensing or providing tangible personal property, amusement or other
services except laundry services, whether automatic or manually operated;

(g) the gross receipts from the service of renting of rooms by hotels,
as defined by K.S.A. 36-501 and amendments thereto, or by accommo-
dation brokers, as defined by K.S.A. 12-1692, and amendments thereto;

(h) the gross receipts from the service of renting or leasing of tangible
personal property except such tax shall not apply to the renting or leasing
of machinery, equipment or other personal property owned by a city and
purchased from the proceeds of industrial revenue bonds issued prior to
July 1, 1973, in accordance with the provisions of K.S.A. 12-1740 through
12-1749, and amendments thereto, and any city or lessee renting or leas-
ing such machinery, equipment or other personal property purchased
with the proceeds of such bonds who shall have paid a tax under the
provisions of this section upon sales made prior to July 1, 1973, shall be
entitled to a refund from the sales tax refund fund of all taxes paid
thereon;

(i) the gross receipts from the rendering of dry cleaning, pressing,

Ch. 185             1997 Session Laws of Kansas             1509

dyeing and laundry services except laundry services rendered through a
coin-operated device whether automatic or manually operated;

(j) the gross receipts from the rendering of the services of washing
and washing and waxing of vehicles;

(k) the gross receipts from cable, community antennae and other sub-
scriber radio and television services;

(l) the gross receipts received from the sales of tangible personal
property to all contractors, subcontractors or repairmen of materials and
supplies for use by them in erecting structures for others, or building on,
or otherwise improving, altering, or repairing real or personal property
of others;

(m) the gross receipts received from fees and charges by public and
private clubs, drinking establishments, organizations and businesses for
participation in sports, games and other recreational activities, but such
tax shall not be levied and collected upon the gross receipts received from:
(1) Fees and charges by any political subdivision, or any youth recreation
organization exclusively providing services to persons 18 years of age or
younger which is exempt from federal income taxation pursuant to section
501(c)(3) of the federal internal revenue code of 1986, for participation
in sports, games and other recreational activities; and (2) entry fees and
charges for participation in a special event or tournament sanctioned by
a national sporting association to which spectators are charged an admis-
sion which is taxable pursuant to subsection (e);

(n) the gross receipts received from dues charged by public and pri-
vate clubs, drinking establishments, organizations and businesses, pay-
ment of which entitles a member to the use of facilities for recreation or
entertainment;

(o) the gross receipts received from the isolated or occasional sale of
motor vehicles or trailers but not including: (1) The transfer of motor
vehicles or trailers by a person to a corporation solely in exchange for
stock securities in such corporation; or (2) the transfer of motor vehicles
or trailers by one corporation to another when all of the assets of such
corporation are transferred to such other corporation; or (3) the sale of
motor vehicles or trailers which are subject to taxation pursuant to the
provisions of K.S.A. 79-5101 et seq., and amendments thereto, by an
immediate family member to another immediate family member. For the
purposes of clause (3), immediate family member means lineal ascendants
or descendants, and their spouses. In determining the base for computing
the tax on such isolated or occasional sale, the fair market value of any
motor vehicle or trailer traded in by the purchaser to the seller may be
deducted from the selling price;

(p) the gross receipts received for the service of installing or applying
tangible personal property which when installed or applied is not being
held for sale in the regular course of business, and whether or not such
tangible personal property when installed or applied remains tangible

1510             1997 Session Laws of Kansas             Ch. 185

personal property or becomes a part of real estate, except that no tax shall
be imposed upon the service of installing or applying tangible personal
property in connection with the original construction of a building or
facility or the construction, reconstruction, restoration, replacement or
repair of a bridge or highway.

For the purposes of this subsection:

(1) ``Original construction'' shall mean the first or initial construction
of a new building or facility. The term ``original construction'' shall include
the addition of an entire room or floor to any existing building or facility,
the completion of any unfinished portion of any existing building or fa-
cility and the restoration, reconstruction or replacement of a building or
facility damaged or destroyed by fire, flood, tornado, lightning, explosion
or earthquake, but such term shall not include replacement, remodeling,
restoration, renovation or reconstruction under any other circumstances;

(2) ``building'' shall mean only those enclosures within which individ-
uals customarily live or are employed, or which are customarily used to
house machinery, equipment or other property, and including the land
improvements immediately surrounding such building; and

(3) ``facility'' shall mean a mill, plant, refinery, oil or gas well, water
well, feedlot or any conveyance, transmission or distribution line of any
cooperative, nonprofit, membership corporation organized under or sub-
ject to the provisions of K.S.A. 17-4601 et seq., and amendments thereto,
or of any municipal or quasi-municipal corporation, including the land
improvements immediately surrounding such facility;

(q) the gross receipts received for the service of repairing, servicing,
altering or maintaining tangible personal property, except computer soft-
ware described in subsection (s), which when such services are rendered
is not being held for sale in the regular course of business, and whether
or not any tangible personal property is transferred in connection there-
with. The tax imposed by this subsection shall be applicable to the services
of repairing, servicing, altering or maintaining an item of tangible personal
property which has been and is fastened to, connected with or built into
real property;

(r) the gross receipts from fees or charges made under service or
maintenance agreement contracts for services, charges for the providing
of which are taxable under the provisions of subsection (p) or (q);

(s) the gross receipts received from the sale of computer software,
and the sale of the services of modifying, altering, updating or maintaining
computer software. As used in this subsection, ``computer software''
means information and directions loaded into a computer which dictate
different functions to be performed by the computer. Computer software
includes any canned or prewritten program which is held or existing for
general or repeated sale, even if the program was originally developed
for a single end user as custom computer software. The sale of computer
software or services does not include: (1) The initial sale of any custom

Ch. 185             1997 Session Laws of Kansas             1511

computer program which is originally developed for the exclusive use of
a single end user; or (2) those services rendered in the modification of
computer software when the modification is developed exclusively for a
single end user only to the extent of the modification and only to the
extent that the actual amount charged for the modification is separately
stated on invoices, statements and other billing documents provided to
the end user. The services of modification, alteration, updating and main-
tenance of computer software shall only include the modification, alter-
ation, updating and maintenance of computer software taxable under this
subsection whether or not the services are actually provided; and

(t) the gross receipts received for telephone answering services, in-
cluding mobile phone services, beeper services and other similar services.

Sec. 7. K.S.A. 1996 Supp. 79-3606, as amended by section 32 of 1997
House Bill No. 2105, is hereby amended to read as follows: 79-3606. The
following shall be exempt from the tax imposed by this act:

(a) All sales of motor-vehicle fuel or other articles upon which a sales
or excise tax has been paid, not subject to refund, under the laws of this
state except cigarettes as defined by K.S.A. 79-3301 and amendments
thereto, cereal malt beverages and malt products as defined by K.S.A. 79-
3817 and amendments thereto, including wort, liquid malt, malt syrup
and malt extract, which is not subject to taxation under the provisions of
K.S.A. 79-41a02 and amendments thereto, and motor vehicles as defined
by K.S.A. 79-1017 and amendments thereto;

(b) all sales of tangible personal property or service, including the
renting and leasing of tangible personal property, purchased directly by
the state of Kansas, a political subdivision thereof, other than a school or
educational institution, or purchased by a public or private nonprofit hos-
pital or nonprofit blood, tissue or organ bank and used exclusively for
state, political subdivision, hospital or nonprofit blood, tissue or organ
bank purposes, except when: (1) Such state or hospital is engaged or
proposes to engage in any business specifically taxable under the provi-
sions of this act and such items of tangible personal property or service
are used or proposed to be used in such business, or (2) such political
subdivision is engaged or proposes to engage in the business of furnishing
gas, water, electricity or heat to others and such items of personal prop-
erty or service are used or proposed to be used in such business;

(c) all sales of tangible personal property or services, including the
renting and leasing of tangible personal property, purchased directly by
a public or private elementary or secondary school or public or private
nonprofit educational institution and used primarily by such school or
institution for nonsectarian programs and activities provided or sponsored
by such school or institution or in the erection, repair or enlargement of
buildings to be used for such purposes. The exemption herein provided

1512             1997 Session Laws of Kansas             Ch. 185

shall not apply to erection, construction, repair, enlargement or equip-
ment of buildings used primarily for human habitation;

(d) all sales of tangible personal property or services purchased by a
contractor for the purpose of constructing, equipping, reconstructing,
maintaining, repairing, enlarging, furnishing or remodeling facilities for
any public or private nonprofit hospital, public or private elementary or
secondary school or a public or private nonprofit educational institution,
which would be exempt from taxation under the provisions of this act if
purchased directly by such hospital, school or educational institution; and
all sales of tangible personal property or services purchased by a contrac-
tor for the purpose of constructing, equipping, reconstructing, maintain-
ing, repairing, enlarging, furnishing or remodeling facilities for any polit-
ical subdivision of the state, the total cost of which is paid from funds of
such political subdivision and which would be exempt from taxation under
the provisions of this act if purchased directly by such political subdivision.
Nothing in this subsection or in the provisions of K.S.A. 12-3418 and
amendments thereto, shall be deemed to exempt the purchase of any
construction machinery, equipment or tools used in the constructing,
equipping, reconstructing, maintaining, repairing, enlarging, furnishing
or remodeling facilities for any political subdivision of the state. As used
in this subsection, K.S.A. 12-3418 and 79-3640, and amendments thereto,
``funds of a political subdivision'' shall mean general tax revenues, the
proceeds of any bonds and gifts or grants-in-aid. Gifts shall not mean
funds used for the purpose of constructing, equipping, reconstructing,
repairing, enlarging, furnishing or remodeling facilities which are to be
leased to the donor. When any political subdivision of the state, public or
private nonprofit hospital, public or private elementary or secondary
school or public or private nonprofit educational institution shall contract
for the purpose of constructing, equipping, reconstructing, maintaining,
repairing, enlarging, furnishing or remodeling facilities, it shall obtain
from the state and furnish to the contractor an exemption certificate for
the project involved, and the contractor may purchase materials for in-
corporation in such project. The contractor shall furnish the number of
such certificate to all suppliers from whom such purchases are made, and
such suppliers shall execute invoices covering the same bearing the num-
ber of such certificate. Upon completion of the project the contractor
shall furnish to the political subdivision, hospital, school or educational
institution concerned a sworn statement, on a form to be provided by the
director of taxation, that all purchases so made were entitled to exemption
under this subsection. As an alternative to the foregoing procedure, any
such contracting entity may apply to the secretary of revenue for agent
status for the sole purpose of issuing and furnishing project exemption
certificates to contractors pursuant to rules and regulations adopted by
the secretary establishing conditions and standards for the granting and

Ch. 185             1997 Session Laws of Kansas             1513

maintaining of such status. All invoices shall be held by the contractor for
a period of five years and shall be subject to audit by the director of
taxation. If any materials purchased under such a certificate are found
not to have been incorporated in the building or other project or not to
have been returned for credit or the sales or compensating tax otherwise
imposed upon such materials which will not be so incorporated in the
building or other project reported and paid by such contractor to the
director of taxation not later than the 20th day of the month following
the close of the month in which it shall be determined that such materials
will not be used for the purpose for which such certificate was issued, the
political subdivision, hospital, school or educational institution concerned
shall be liable for tax on all materials purchased for the project, and upon
payment thereof it may recover the same from the contractor together
with reasonable attorney fees. Any contractor or any agent, employee or
subcontractor thereof, who shall use or otherwise dispose of any materials
purchased under such a certificate for any purpose other than that for
which such a certificate is issued without the payment of the sales or
compensating tax otherwise imposed upon such materials, shall be guilty
of a misdemeanor and, upon conviction therefor, shall be subject to the
penalties provided for in subsection (g) of K.S.A. 79-3615, and amend-
ments thereto;

(e) all sales of tangible personal property or services purchased by a
contractor for the erection, repair or enlargement of buildings or other
projects for the government of the United States, its agencies or instru-
mentalities, which would be exempt from taxation if purchased directly
by the government of the United States, its agencies or instrumentalities.
When the government of the United States, its agencies or instrumen-
talities shall contract for the erection, repair, or enlargement of any build-
ing or other project, it shall obtain from the state and furnish to the
contractor an exemption certificate for the project involved, and the con-
tractor may purchase materials for incorporation in such project. The
contractor shall furnish the number of such certificates to all suppliers
from whom such purchases are made, and such suppliers shall execute
invoices covering the same bearing the number of such certificate. Upon
completion of the project the contractor shall furnish to the government
of the United States, its agencies or instrumentalities concerned a sworn
statement, on a form to be provided by the director of taxation, that all
purchases so made were entitled to exemption under this subsection. As
an alternative to the foregoing procedure, any such contracting entity may
apply to the secretary of revenue for agent status for the sole purpose of
issuing and furnishing project exemption certificates to contractors pur-
suant to rules and regulations adopted by the secretary establishing con-
ditions and standards for the granting and maintaining of such status. All
invoices shall be held by the contractor for a period of five years and shall
be subject to audit by the director of taxation. Any contractor or any agent,

1514             1997 Session Laws of Kansas             Ch. 185

employee or subcontractor thereof, who shall use or otherwise dispose of
any materials purchased under such a certificate for any purpose other
than that for which such a certificate is issued without the payment of
the sales or compensating tax otherwise imposed upon such materials,
shall be guilty of a misdemeanor and, upon conviction therefor, shall be
subject to the penalties provided for in subsection (g) of K.S.A. 79-3615
and amendments thereto;

(f) tangible personal property purchased by a railroad or public utility
for consumption or movement directly and immediately in interstate
commerce;

(g) sales of aircraft including remanufactured and modified aircraft,
sales of aircraft repair, modification and replacement parts and sales of
services employed in the remanufacture, modification and repair of air-
craft sold to persons using such aircraft and aircraft repair, modification
and replacement parts as certified or licensed carriers of persons or prop-
erty in interstate or foreign commerce under authority of the laws of the
United States or any foreign government or sold to any foreign govern-
ment or agency or instrumentality of such foreign government and all
sales of aircraft, aircraft parts, replacement parts and services employed
in the remanufacture, modification and repair of aircraft for use outside
of the United States;

(h) all rentals of nonsectarian textbooks by public or private elemen-
tary or secondary schools;

(i) the lease or rental of all films, records, tapes, or any type of sound
or picture transcriptions used by motion picture exhibitors;

(j) meals served without charge or food used in the preparation of
such meals to employees of any restaurant, eating house, dining car, hotel,
drugstore or other place where meals or drinks are regularly sold to the
public if such employees' duties are related to the furnishing or sale of
such meals or drinks;

(k) any motor vehicle, semitrailer or pole trailer, as such terms are
defined by K.S.A. 8-126 and amendments thereto, or aircraft sold and
delivered in this state to a bona fide resident of another state, which motor
vehicle, semitrailer, pole trailer or aircraft is not to be registered or based
in this state and which vehicle, semitrailer, pole trailer or aircraft will not
remain in this state more than 10 days;

(l) all isolated or occasional sales of tangible personal property, serv-
ices, substances or things, except isolated or occasional sale of motor
vehicles specifically taxed under the provisions of subsection (o) of K.S.A.
79-3603 and amendments thereto;

(m) all sales of tangible personal property which become an ingre-
dient or component part of tangible personal property or services pro-
duced, 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

Ch. 185             1997 Session Laws of Kansas             1515

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;

(n) all sales of tangible personal property which is consumed in the
production, manufacture, processing, mining, drilling, refining or com-
pounding of tangible personal property, the treating of by-products or
wastes derived from any such production process, the providing of serv-
ices or the irrigation of crops for ultimate sale at retail within or without
the state of Kansas; and any purchaser of such property may obtain from
the director of taxation and furnish to the supplier an exemption certifi-
cate number for tangible personal property for consumption in such pro-
duction, manufacture, processing, mining, drilling, refining, compound-
ing, treating, irrigation and in providing such services;

(o) all sales of animals, fowl and aquatic plants and animals, the pri-
mary purpose of which is use in agriculture or aquaculture, as defined in
K.S.A. 47-1901, and amendments thereto, the production of food for
human consumption, the production of animal, dairy, poultry or aquatic
plant and animal products, fiber or fur, or the production of offspring for
use for any such purpose or purposes;

(p) all sales of drugs, as defined by K.S.A. 65-1626 and amendments
thereto, dispensed pursuant to a prescription order, as defined by K.S.A.
65-1626 and amendments thereto, by a licensed practitioner;

(q) all sales of insulin dispensed by a person licensed by the state
board of pharmacy to a person for treatment of diabetes at the direction
of a person licensed to practice medicine by the board of healing arts;

(r) all sales of prosthetic and orthopedic appliances prescribed in
writing by a person licensed to practice the healing arts, dentistry or
optometry. For the purposes of this subsection, the term prosthetic and
orthopedic appliances means any apparatus, instrument, device, or equip-
ment used to replace or substitute for any missing part of the body; used
to alleviate the malfunction of any part of the body; or used to assist any
disabled person in leading a normal life by facilitating such person's mo-
bility; such term shall include accessories attached or to be attached to
motor vehicles, but such term shall not include motor vehicles or personal
property which when installed becomes a fixture to real property;

(s) all sales of tangible personal property or services purchased di-
rectly by a groundwater management district organized or operating un-
der the authority of K.S.A. 82a-1020 et seq. and amendments thereto,
which property or services are used in the operation or maintenance of
the district;

(t) all sales of farm machinery and equipment or aquaculture ma-
chinery and equipment, repair and replacement parts therefor and serv-
ices performed in the repair and maintenance of such machinery and
equipment. For the purposes of this subsection the term ``farm machinery
and equipment or aquaculture machinery and equipment'' shall include

1516             1997 Session Laws of Kansas             Ch. 185

machinery and equipment used in the operation of Christmas tree farm-
ing but shall not include any passenger vehicle, truck, truck tractor, trailer,
semitrailer or pole trailer, other than a farm trailer, as such terms are
defined by K.S.A. 8-126 and amendments thereto. Each purchaser of
farm machinery and equipment or aquaculture machinery and equipment
exempted herein must certify in writing on the copy of the invoice or
sales ticket to be retained by the seller that the farm machinery and
equipment or aquaculture machinery and equipment purchased will be
used only in farming, ranching or aquaculture production. Farming or
ranching shall include the operation of a feedlot and farm and ranch work
for hire and the operation of a nursery;

(u) all leases or rentals of tangible personal property used as a dwell-
ing if such tangible personal property is leased or rented for a period of
more than 28 consecutive days;

(v) all sales of food products to any contractor for use in preparing
meals for delivery to homebound elderly persons over 60 years of age and
to homebound disabled persons or to be served at a group-sitting at a
location outside of the home to otherwise homebound elderly persons
over 60 years of age and to otherwise homebound disabled persons, as
all or part of any food service project funded in whole or in part by
government or as part of a private nonprofit food service project available
to all such elderly or disabled persons residing within an area of service
designated by the private nonprofit organization, and all sales of food
products for use in preparing meals for consumption by indigent or home-
less individuals whether or not such meals are consumed at a place des-
ignated for such purpose;

(w) all sales of natural gas, electricity, heat and water delivered
through mains, lines or pipes: (1) To residential premises for noncom-
mercial use by the occupant of such premises; (2) for agricultural use and
also, for such use, all sales of propane gas; (3) for use in the severing of
oil; and (4) to any property which is exempt from property taxation pur-
suant to K.S.A. 79-201b Second through Sixth. As used in this paragraph,
``severing'' shall have the meaning ascribed thereto by subsection (k) of
K.S.A. 79-4216, and amendments thereto;

(x) all sales of propane gas, LP-gas, coal, wood and other fuel sources
for the production of heat or lighting for noncommercial use of an oc-
cupant of residential premises;

(y) all sales of materials and services used in the repairing, servicing,
altering, maintaining, manufacturing, remanufacturing, or modification of
railroad rolling stock for use in interstate or foreign commerce under
authority of the laws of the United States;

(z) all sales of tangible personal property and services purchased di-
rectly by a port authority or by a contractor therefor as provided by the
provisions of K.S.A. 12-3418 and amendments thereto;

(aa) all sales of materials and services applied to equipment which is

Ch. 185             1997 Session Laws of Kansas             1517

transported into the state from without the state for repair, service, al-
teration, maintenance, remanufacture or modification and which is sub-
sequently transported outside the state for use in the transmission of
liquids or natural gas by means of pipeline in interstate or foreign com-
merce under authority of the laws of the United States;

(bb) all sales of used mobile homes or manufactured homes. As used
in this subsection: (1) ``Mobile homes'' and ``manufactured homes'' shall
have the meanings ascribed thereto by K.S.A. 58-4202 and amendments
thereto; and (2) ``sales of used mobile homes or manufactured homes''
means sales other than the original retail sale thereof;

(cc) all sales of tangible personal property or services purchased for
the purpose of and in conjunction with constructing, reconstructing, en-
larging or remodeling a business or retail business which meets the
requirements established in K.S.A. 74-50,115 and amendments thereto,
and the sale and installation of machinery and equipment purchased for
installation at any such business or retail business. When a person shall
contract for the construction, reconstruction, enlargement or remodeling
of any such business or retail business, such person shall obtain from the
state and furnish to the contractor an exemption certificate for the project
involved, and the contractor may purchase materials, machinery and
equipment for incorporation in such project. The contractor shall furnish
the number of such certificates to all suppliers from whom such purchases
are made, and such suppliers shall execute invoices covering the same
bearing the number of such certificate. Upon completion of the project
the contractor shall furnish to the owner of the business or retail business
a sworn statement, on a form to be provided by the director of taxation,
that all purchases so made were entitled to exemption under this subsec-
tion. All invoices shall be held by the contractor for a period of five years
and shall be subject to audit by the director of taxation. Any contractor
or any agent, employee or subcontractor thereof, who shall use or oth-
erwise dispose of any materials, machinery or equipment purchased un-
der such a certificate for any purpose other than that for which such a
certificate is issued without the payment of the sales or compensating tax
otherwise imposed thereon, shall be guilty of a misdemeanor and, upon
conviction therefor, shall be subject to the penalties provided for in sub-
section (g) of K.S.A. 79-3615 and amendments thereto. As used in this
subsection, ``business'' and ``retail business'' have the meanings respec-
tively ascribed thereto by K.S.A. 74-50,114 and amendments thereto;

(dd) all sales of tangible personal property purchased with food
stamps issued by the United States department of agriculture;

(ee) all sales of lottery tickets and shares made as part of a lottery
operated by the state of Kansas;

(ff) on and after July 1, 1988, all sales of new mobile homes or man-
ufactured homes to the extent of 40% of the gross receipts, determined
without regard to any trade-in allowance, received from such sale. As used

1518             1997 Session Laws of Kansas             Ch. 185

in this subsection, ``mobile homes'' and ``manufactured homes'' shall have
the meanings ascribed thereto by K.S.A. 58-4202 and amendments
thereto;

(gg) all sales of tangible personal property purchased in accordance
with vouchers issued pursuant to the federal special supplemental food
program for women, infants and children;

(hh) all sales of medical supplies and equipment purchased directly
by a nonprofit skilled nursing home or nonprofit intermediate nursing
care home, as defined by K.S.A. 39-923, and amendments thereto, for
the purpose of providing medical services to residents thereof. This ex-
emption shall not apply to tangible personal property customarily used
for human habitation purposes;

(ii) all sales of tangible personal property purchased directly by a non-
profit organization for nonsectarian comprehensive multidiscipline youth
development programs and activities provided or sponsored by such or-
ganization. This exemption shall not apply to tangible personal property
customarily used for human habitation purposes;

(jj) all sales of tangible personal property or services, including the
renting and leasing of tangible personal property, purchased directly on
behalf of a community-based mental retardation facility or mental health
center organized pursuant to K.S.A. 19-4001 et seq., and amendments
thereto, and licensed in accordance with the provisions of K.S.A. 75-
3307b and amendments thereto. This exemption shall not apply to tan-
gible personal property customarily used for human habitation purposes;

(kk) on and after January 1, 1989, all sales of machinery and equip-
ment used directly and primarily for the purposes of manufacturing, as-
sembling, processing, finishing, storing, warehousing or distributing ar-
ticles of tangible personal property in this state intended for resale by a
manufacturing or processing plant or facility or a storage, warehousing or
distribution facility:

(1) For purposes of this subsection, machinery and equipment shall
be deemed to be used directly and primarily in the manufacture, assem-
blage, processing, finishing, storing, warehousing or distributing of tan-
gible personal property where such machinery and equipment is used
during a manufacturing, assembling, processing or finishing, storing,
warehousing or distributing operation:

(A) To effect a direct and immediate physical change upon the tangible
personal property;

(B) to guide or measure a direct and immediate physical change upon
such property where such function is an integral and essential part of
tuning, verifying or aligning the component parts of such property;

(C) to test or measure such property where such function is an in-
tegral part of the production flow or function;

(D) to transport, convey or handle such property during the manu-

Ch. 185             1997 Session Laws of Kansas             1519

facturing, processing, storing, warehousing or distribution operation at
the plant or facility; or

(E) to place such property in the container, package or wrapping in
which such property is normally sold or transported.

(2) For purposes of this subsection ``machinery and equipment used
directly and primarily'' shall include, but not be limited to:

(A) Mechanical machines or major components thereof contributing
to a manufacturing, assembling or finishing process;

(B) molds and dies that determine the physical characteristics of the
finished product or its packaging material;

(C) testing equipment to determine the quality of the finished prod-
uct;

(D) computers and related peripheral equipment that directly control
or measure the manufacturing process or which are utilized for engi-
neering of the finished product; and

(E) computers and related peripheral equipment utilized for research
and development and product design.

(3) ``Machinery and equipment used directly and primarily'' shall not
include:

(A) Hand tools;

(B) machinery, equipment and tools used in maintaining and repair-
ing any type of machinery and equipment;

(C) transportation equipment not used in the manufacturing, assem-
bling, processing, furnishing, storing, warehousing or distributing process
at the plant or facility;

(D) office machines and equipment including computers and related
peripheral equipment not directly and primarily used in controlling or
measuring the manufacturing process;

(E) furniture and buildings; and

(F) machinery and equipment used in administrative, accounting,
sales or other such activities of the business;

(ll) all sales of educational materials purchased for distribution to the
public at no charge by a nonprofit corporation organized for the purpose
of encouraging, fostering and conducting programs for the improvement
of public health;

(mm) all sales of seeds and tree seedlings; fertilizers, insecticides,
herbicides, germicides, pesticides and fungicides; and services, purchased
and used for the purpose of producing plants in order to prevent soil
erosion on land devoted to agricultural use;

(nn) except as otherwise provided in this act, all sales of services ren-
dered by an advertising agency or licensed broadcast station or any mem-
ber, agent or employee thereof;

(oo) all sales of tangible personal property purchased by a community
action group or agency for the exclusive purpose of repairing or weath-
erizing housing occupied by low income individuals;

1520             1997 Session Laws of Kansas             Ch. 185

(pp) all sales of drill bits and explosives actually utilized in the explo-
ration and production of oil or gas;

(qq) all sales of tangible personal property and services purchased by
a nonprofit museum or historical society or any combination thereof, in-
cluding a nonprofit organization which is organized for the purpose of
stimulating public interest in the exploration of space by providing edu-
cational information, exhibits and experiences, which is exempt from fed-
eral income taxation pursuant to section 501(c)(3) of the federal internal
revenue code of 1986;

(rr) all sales of tangible personal property which will admit the pur-
chaser thereof to any annual event sponsored by a nonprofit organization
which is exempt from federal income taxation pursuant to section
501(c)(3) of the federal internal revenue code of 1986;

(ss) all sales of tangible personal property and services purchased by
a public broadcasting station licensed by the federal communications
commission as a noncommercial educational television or radio station;
and

(tt) all sales of tangible personal property and services purchased by
or on behalf of a not-for-profit corporation which is exempt from federal
income taxation pursuant to section 501(c)(3) of the federal internal rev-
enue code of 1986, for the sole purpose of constructing a Kansas Korean
War memorial;

(uu) all sales of tangible personal personal property and services pur-
chased by or on behalf of any rural volunteer fire-fighting organization
for use exclusively in the performance of its duties and functions;

(vv) all sales of tangible personal property purchased by any of the
following organizations which are exempt from federal income taxation
pursuant to section 501 (c)(3) of the federal internal revenue code of 1986,
for the following purposes, and all sales of any such property by or on
behalf of any such organization for any such purpose:

(1) The American Heart Association, Kansas Affiliate, Inc. for the
purposes of providing education, training, certification in emergency car-
diac care, research and other related services to reduce disability and
death from cardiovascular diseases and stroke;

(2) the Kansas Alliance for the Mentally Ill, Inc. for the purpose of
advocacy for persons with mental illness and to education, research and
support for their families;

(3) the Kansas Mental Illness Awareness Council for the purposes of
advocacy for persons who are mentally ill and to education, research and
support for them and their families;

(4) the American Diabetes Association Kansas Affiliate, Inc. for the
purpose of eliminating diabetes through medical research, public educa-
tion focusing on disease prevention and education, patient education in-
cluding information on coping with diabetes, and professional education
and training;

Ch. 185             1997 Session Laws of Kansas             1521

(5) the American Lung Association of Kansas, Inc. for the purpose of
eliminating all lung diseases through medical research, public education
including information on coping with lung diseases, professional educa-
tion and training related to lung disease and other related services to
reduce the incidence of disability and death due to lung disease;

(6) the Kansas chapters of the Alzheimer's Disease and Related Dis-
orders Association, Inc. for the purpose of providing assistance and sup-
port to persons in Kansas with Alzheimer's disease, and their families and
caregivers; and

(ww) all sales of tangible personal property purchased by the Habitat
for Humanities for the exclusive use of being incorporated within a hous-
ing project constructed by such organization.

Sec. 8. K.S.A. 12-1693 and 12-1697 and K.S.A. 1996 Supp. 12-188,
12-1692, 12-1696, 79-3603 and 79-3606, as amended by section 32 of
1997 House Bill No. 2105, are hereby repealed.

Sec. 9. This act shall take effect and be in force from and after its
publication in the statute book.

Approved May 15, 1997.