Kansas offers property tax exemptions relating to “commercial/industrial machinery and equipment” that could be very beneficial to taxpayers owning or leasing personal property. They are as follows: 

Commercial/Industrial Machinery and Equipment Exemption:

Any qualified purchase or lease of machinery and equipment made after June 30, 2006 is exempt from property taxation in Kansas. Of course, there are a few clarifications to keep in mind. The term “Acquired” does not include stock purchases, mergers, reorganizations or other internal transfers. However, it does include transfers of property into Kansas after June 30^th for the purposes of expansion, replacement or creation of a new business. 

Qualified Purchase is defined as: 

a purchase of commercial and industrial machinery and equipment for fair and valuable consideration where such machinery and equipment is physically transferred to the purchaser to be used in the purchaser’s business or trade.

Qualified Lease is defined as: 

a lease of commercial and industrial machinery and equipment for not less than 30 days for fair and valuable consideration where such machinery and equipment is physically transferred to the lessee to be used in the lessee’s business or trade.

$1,500 Exemption for Commercial Equipment:

Commercial/Industrial equipment “items” with a “retail cost when new” (RCWN) of $1,500 or less are exempt from property taxation. Again, there are two things to pay close attention to when determining whether or not the equipment is eligible for the exemption:

Retail cost when new:

Retail cost when new (RCWN): The Kansas Constitution requires the valuation process for machinery and equipment in the “Commercial” subclass begin with the “retail cost when new”. For purposes of personal property taxation, RCWN is the total amount a consumer would pay to acquire new property in order to use it to produce income over a period of years in a commercial or industrial setting. Retail cost when new is not the used sale price, and it is not the wholesale or manufacturer’s cost. It is the dollar amount an item would cost a consumer when the item is purchased new at the retail level of trade. For purposes of personal property taxation, the term “retail cost when new” does not include sales tax or freight and installation charges that are separate and readily discernible from the set retail price.

 What is considered an “Item”:

For purposes of the $1500 exemption an “item” is generally going to be a single line item as it is reported on a rendition. Exceptions to this general rule are: 

1. If the line item represents a group of like goods that can be used independently and they have the same or similar cost, the line item is actually several “items”. The RCWN of each “item” may qualify for the exemption. 

2. In that an “item” is the smallest quantity that may be used independently, one pen, one sheet of paper or one rubber band represents a material and supply “item”. The RCWN of each “item” that can be independently used may qualify for the exemption. Materials and supplies are classified under the “Other” subclass of personal property. Personal property in the “Other” subclass is listed on schedule 6 of the rendition. See the “Other Personal Property Not Elsewhere Classified” section in this guide for information on valuing materials and supplies.

More information on these exemptions can be found in the 2010 Personal Property Valuation Guide,  K.S.A. 201 and K.S.A. 79-223.

The Kansas Court of Appeals recently reversed a decision by the District Court that set aside the opinion of the Kansas Board of Tax Appeals. At the center of the case was the valuation methodology employed by the taxing jurisdiction’s appraiser. The Court of Appeals found that the jurisdiction’s expert witness not only erred, but also violated USPAP by valuing the various segments of the property and summing the individual values to arrive at an overall valuation conclusion. The court relied upon USPAP Standard Rule 1-4(e):

“Pursuant to USPAP Standard Rule 1-4(e) (2001), an appraiser must analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and refrain from valuing the whole solely by adding together the individual values of the various estates or component parts. Although the value of the whole may be equal to the sum of the separate estates or parts, it also may be greater or less than the sum of such estates or parts. Therefore, the value of the whole must be tested by reference to appropriate data and supported by an appropriate analysis of such data.”

The Court goes on to state:

“There is no question that Kubert violated USPAP Rule 1-4(e). In executing each of his approaches to value, Kubert segmented the property, valued each segment individually, and then added the values to get his final valuation.”

The case can be found here.