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In re Appeal of Ward Kraft Forms, Inc.

Tax Court of Kansas

September 11, 2013

IN THE MATTER OF THE APPEAL OF WARD KRAFT FORMS, INC., FROM AN ORDER OF THE DIVISION OF TAXATION ON ASSESSMENT OF RETAIL SALES TAX

ORDER GRANTING THE KANSAS DEPARTMENT OF REVENUE'S MOTION FOR SUMMARY JUDGMENT AND DENYING WARD KRAFT'S CROSS MOTION FOR SUMMARY JUDGMENT

COMES NOW this cause before the Kansas State Board of Tax Appeals (the "Board") on motion for summary judgment filed by the Kansas Department of Revenue (the "Department") on November 4, 2005, and on cross motion for summary judgment filed by Ward Kraft Forms, Inc. ("Ward Kraft") on December 15, 2005. Having considered the motions and all supporting memoranda and evidence filed therewith, and the applicable law, it is hereby

ORDERED AND ADJUDGED that the Department's motion for summary judgment is granted and Ward Kraft's cross motion for summary judgment is denied for the reasons set forth hereinafter.

I.

Uncontroverted Facts

The Department's memorandum lists eleven facts upon which it relies for its motion. Ward Kraft does not controvert the facts as set forth in the Department's memorandum and it provides in its responsive memorandum six additional facts. At the hearing of this matter, the Department stipulated on the record that it did not controvert the six additional facts set forth in Ward Kraft's motion. Consequently, the Board finds the material facts set forth by both parties in their respective memoranda to be uncontroverted and this motion to be ready for summary judgment.

The facts, summarized, are as follows. Ward Kraft is a Kansas corporation engaged in the business of printing goods. The Department conducted a tax audit of Ward Kraft's business for the period between March 1, 2001 and February 29, 2004. After its audit, the Department issued a final notice to Ward Kraft for the underpayment of taxes, interest and penalties in the amount of $37, 183.00 for purchases of electricity consumed by air-conditioning equipment used to cool its plant. Upon appeal of the assessment, the secretary's designee affirmed the Department's assessment. On March 1, 2005, Ward Kraft filed the instant appeal with the Board.

Ward Kraft appeals from the Department's assessment, seeking exemption from retailer's sales taxation for all electricity used by its air conditioning equipment to control temperature and humidity throughout its printing plant. Ward Kraft claims exemption pursuant to K.S.A. 79-3606(n), which provides exemption for tangible personal property consumed in the "production, manufacture, processing, … refining or compounding" of tangible personal property. According to the manufacturer's specifications for Ward Kraft's printing equipment, the printing plant requires sufficient air conditioning to compensate for the heat output from the presses and other equipment. The manufacturer's specifications also require that for ideal printing performance, the printing plant should be maintained at approximately 71° F and 45 percent relative humidity (35 percent during the heating season). In addition, the specifications address plant airflow, storage and conditioning of paper and printing materials, all of which are dependent upon plant atmospheric conditions.

II.

Analysis

Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. K.S.A. 60-256(c); Mitzer v. State Dept. of SRS, 257 Kan. 258, 260, 891 P.2d 435 (1995). The purpose of summary judgment is to eliminate delay in legal disposition where there is no real issue of material fact. Timi v. Prescott Bank, 220 Kan. 377, 386, 553 P.2d 315 (1976). In the instant case, the parties stipulate as to the material facts of the case and assert that the matter is ready for summary judgment. The Board agrees.

The central issue in this appeal is whether the electricity consumed by air conditioning machinery and equipment used to control the temperature and humidity throughout Ward Kraft's printing plant qualifies as exempt tangible personal property consumed in the "production, manufacture, processing, … refining or compounding" of tangible personal property under K.S.A. 79-3606(n). For the periods in issue, K.S.A. 79-3606(n) provides in pertinent part a retail sales tax exemption for the following:

All sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the treatment of by-products or waste derived from any such production process, the providing of services or the irrigation of crops for ultimate sale at retail within or without the state of Kansas….

For the period in issue, the term "property which is consumed" is defined by statute as specifically including electricity. K.S.A. 79-3602(dd) (previously codified until July 1, 2003, at K.S.A. 79-3602(m)).

Ward Kraft argues that because controlled temperature and humidity are essential and indispensable in the printing process, the electrical current driving the air conditioning equipment that cools its entire plant area should be exempted under K.S.A. 79-3606(n). In support of its argument, Ward Kraft cites two Kansas appellate cases, In re Appeal of Collingwood Grain, Inc., 257 Kan. 237, 891 P.2d 422 (1995) and In re Appeal of Water District No. 1 of Johnson County, 26 Kan.App.2d 371, 988 P.2d 267 (1999). According to Ward Craft, these cases compel the ...


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