The Kansas Supreme Court upheld a decision made in favor of a taxpayer seeking a refund of sales tax paid under the integrated plant theory exemption. The exemption applies to purchases of machinery and equipment (and repair and replacement parts) used in Kansas as an integral or essential part of an integrated production operation by a manufacturing or processing plant or facility. The taxpayer was seeking a refund of sales tax paid on the purchase of repair parts for loaders and haulers used to move raw limestone within its property from its quarry to its hammermills. The Kansas Department of Revenue argued that the equipment was not exempt because it was used for excavation instead of manufacturing. The court rejected this argument, finding under the exemption statute that integrated production operation includes preproduction operations to handle, store and treat raw materials. The statute also states that machinery and equipment is considered to be used as an integral or essential part of an integrated production operation if it is used to “receive, transport, convey, handle, treat or store raw materials in preparation of its placement on the production line.” The court found that the equipment was used at the physical location of the manufacturing facility, which is required by the exemption. The land on which the equipment was used was part of a single, contiguous, fixed location owned by the taxpayer. The court found that the legislative intent of the exemption statute was for the defined boundaries of a manufacturing or processing plant or facility to extend past the area immediately around the production line in cases such as this, where there are contiguous areas at a single, fixed location where integrated production operations occur. The court rejected the department of revenue’s argument to apply the doctrines of operative construction and strict construction. The court declined to afford judicial deference to the department of revenue or to construe the exemption strictly in favor of imposing sales tax. The court found that unreasonable statutory interpretation should be avoided and that legislative intent must be ascertained. For our previous news item on this topic, click here. (In the Matter of the Appeal of LaFarge Midwest/Martin Tractor Co., Inc., Kansas Supreme Court, No. 102,852, March 2, 2012)