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IN RE TAX APPEAL OF COLLINGWOOD GRAIN3/10/1995
The opinion of the court was delivered by
This is an appeal by the Kansas Department of Revenue (KDR) from a final order of the Board of Tax Appeals (BOTA) which held that the sale of electricity consumed in grain elevator operations, such as for aeration, blending, cleaning, and drying of grain, is exempt from sales tax pursuant to K.S.A. 79-3602(m)(B) and K.S.A. 79-3606(n).
Collingwood Grain, Inc., Garvey Elevators, Inc., and Cairo Cooperative Equity Exchange (taxpayers) are grain elevators. In 1989, taxpayers each submitted claims seeking sales tax exemption on future utility bills and refunds of sales tax paid on previous billings pursuant to K.S.A. 79-3606(n). That statute provides for a sales tax exemption on:
"all sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the providing of services 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 certificate number for tangible personal property for consumption in such production, manufacture, processing, mining, drilling, refining, compounding, irrigation and in providing such services." It is undisputed that electricity is "tangible personal property" subject to the sales tax exemption. K.S.A. 79-3602(m)(B).
The taxpayers' claims were consolidated. The procedural history is of no real significance and will not be set forth in detail. The first hearing occurred in 1989, and subsequently there was a rehearing by BOTA, following remand by the Court of Appeals. BOTA issued its order on remand in February 1994. The order states in pertinent part:
"At harvest, grain is dumped into a pit and is then taken to a storage bin for holding. Following the completion of harvest, the grain elevators begin their
compounding, processing, and refinement activities which include the process of blending/turning, fumigation, cleaning, aeration, grain drying, feed grinding and fertilizer blending. The functions and purposes of each process are often interrelated and are often completed in conjunction with the other processes. The processes available and performed at each elevator vary according to the individual property characteristics of the elevator.
"A. Blending/Turning. The term `blending' is often used interchangeably with `turning'; however, for purposes of taxation, such processes are separate and distinct. Blending is the process which takes the grain received in various quality levels and refines, compounds, and processes the grain through cleaning, turning, and dehydration to achieve a more uniform product in terms of moisture level, test weight and protein level. Blending improves the value or marketability of the grain. In contrast, turning is the process by which grain is moved within the bin primarily to dissipate hot spots and prevent spoilage. Although turning will result in some dehydration, the primary purpose of turning is to preserve the grain rather than to create an improved or more marketable product.
"B. Fumigation. Typically, in September or October following harvest, grain is fumigated for the purpose of killing all bugs in the grain. Fumigation is the process whereby fumigants (either liquids or pellets) are added to the grain to kill [insects] and prevent further insect damage. One method of fumigation is to turn the grain and deposit phosphine pellets on the grain as it goes into the bin. Another method of fumigation is through the appl
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