Exemptions from sales tax may appear rather straight forward, but they are all somewhat complex in practice. Always consult your tax professional and do not rely solely upon information contained below.
Kentucky sales tax applies to retail sales of tangible personal property, as well as the provision of specified services. However, as is the case with most things in the tax world, there are exceptions to the general rule.
These statutes and regulations govern Kentucky sales tax.
1. Kentucky Revised Statutes Chapter 139 : http://www.lrc.ky.gov/statutes/chapter.aspx?id=37663
2. Kentucky Administrative Regulation 103: http://www.lrc.ky.gov/kar/TITLE103.HTM
Supplies, Tools, and Materials Exemption
In order to qualify for an exemption, an item must be either:
- "Materials which enter into and become an ingredient or component part of the manufactured product” or “other tangible personal property which is directly used in manufacturing or industrial processing, if the property has a useful life of less than one year."
Even with the exemption, a manufacturer may still pay some sales tax, as the exemption does not include repair costs, replacement parts, or spare parts.
Purchase exemption certificate: https://revenue.ky.gov/Forms/51A1261209.pdf
Manufacturing Machinery Exemption
Machinery for New and Expanded Industry Certificate: https://revenue.ky.gov/Forms/51A111614.pdf
While not all machinery is exempt from sales tax, Kentucky does provide an exemption for machinery that is for “new and expanded industry.” In order to qualify for this exemption, the machinery must meet three criteria. The machinery:
- must be used directly in manufacturing
- must be used for the first time in a Kentucky plant facility
- cannot replace existing machinery unless it increases consumption of recycled materials by more than 10%, performs different functions, manufactures a different product, or has a greater productive capacity