The Kansas retail sales tax is levied statewide at the rate of 6.5 percent on retail sales of tangible personal property and certain services, absent specific exemption. Additionally, certain services are not subject to the retail sales tax. For purposes of this article, the term “sales tax” refers to both sales and use tax.
In terms of their effect on revenues, sales tax exemptions are a type of “tax expenditure,” representing a loss of revenue attributable to the tax that would otherwise be collected.
Specific sales tax exemptions are primarily found in KSA 79-3603 and KSA 79-3606; additional exemptions are provided for in KSA 79-3602, 79-3606d through 79-3606f, and 79-3606h.
Definition of Sales Tax Exemption
Strictly speaking, sales tax exemptions refer to categories of sales subject to the tax imposed by KSA 79-3603, but which are specifically named as exempt from the otherwise imposed tax. In a broader sense, exemptions also include certain sales expressly excluded from being subject to the tax in the first place. These occur as exceptions that narrow the definition of a category to which the tax applies. In a similar way, certain modifications to the definition of “sale price” for purposes of retail sales tax also amount to exemptions by excluding all or a portion of the price of certain kinds of sales from taxation.
Even more broadly, categories of sales previously subject to tax but excluded through legislative action are sometimes considered to be sales tax exemptions, even though no provision currently exists that would render it otherwise taxable.
These distinctions can have important ramifications in terms of how the sales tax is administered, as sellers are required to collect exemption certificates from purchasers under varying circumstances, but only as it applies to exemptions in the narrow sense described above.
State and Local Impacts of Sales Tax Exemptions
A few categories of otherwise exempt sales remain subject to city and county sales taxes, including all sales of food and food ingredients and certain residential and agricultural utilities.
Statutory Exemptions
As of July 1, 2025, Kansas statutes include 120 subsections devoted to exemptions, of which 101 are found in KSA 79-3606 and 13 of which are exemptions in the broader sense. The remaining exemptions are true exemptions found outside of KSA 79-3606.
In their annual Tax Expenditure Report, the Kansas Department of Revenue (KDOR) classifies sales tax exemptions as conceptual, legally required, and public policy exemptions. The total reported amount of state revenue foregone due to sales tax exemptions in FY 2024 was $8.7 billion.
Conceptual Exemptions
Exemptions classified as conceptual exemptions tend to serve broadly acknowledged policy goals attributable to generally accepted principles of tax policy. These primarily avoid double-taxation or imposition of a value-added tax, neither of which is explicitly required by law, but which have historically been avoided in the United States. Value-added taxes impose tax on intermediate states of production and distribution, but sales taxes in the United States are, as a matter of custom, collected at the point of sale as a tax on final consumption.
For FY 2024, KDOR estimated that conceptual exemptions resulted in a reduction of revenue in the amount of $4.84 billion. Of that amount, $3.0 billion can be attributed to the exemption found in KSA 79-3606(m), which exempts from taxation property that becomes an ingredient or component part of property or services produced or manufactured for ultimate sale at retail.
Legally Required Exemptions
Legally required exemptions are required for conformity with federal law. Such exemptions resulted in reduction of revenue in the amount of $156.2 million in FY 2024, according to estimates by KDOR. This amount was primarily attributable to $63.5 million lost to purchases by the federal government or its agencies and instrumentalities; and $36.3 million lost to purchases by railroads or public utilities for use in the movement of interstate commerce.
Public Policy Exemptions
Public policy exemptions, as classified by KDOR, are more discretionary in nature (though some could be considered to be in line with conceptual exemptions) and generally tend to promote public welfare or serve social or economic goals. Public policy exemptions accounted for $3.7 billion in lost revenue in FY 2024 according to KDOR.
Exemptions for non-federal government and nonprofit health care entity purchases are the largest public policy subcategory, accounting for 46.0 percent of such exemptions in FY 2024. Other categories of public policy exemptions include:
- Exemption of services that are otherwise specifically taxable;
- Charitable, religious, and benevolent exemptions, including general exemptions for such purposes and exemptions for specifically named charitable organizations;
- Economic exemptions, including consumer, business, and agricultural exemptions; and
- Public welfare exemptions, including educational and health care exemptions.
The subcategories of public policy exemptions are provided in the table below with the respective amount of foregone revenue in FY 2024 attributable to each.
| Exemption Type | FY 24 Revenue Lost (millions) |
|---|---|
| Governmental Exemptions | $1,719.0 |
| Consumer Exemptions | $879.9 |
| Business Exemptions | $542.9 |
| Educational Exemptions | $197.2 |
| Agriculture Exemptions | $171.1 |
| Health Care Exemptions | $132.7 |
| Charitable/Religious/Benevolent Exemptions | $49.3 |
| Named Charitable Organization Exemptions | $2.6 |
| Taxable Service Exemptions | $6.4 |
Recent Legislation
2022 House Sub. for SB 347 created a sales tax exemption for qualifying firms under the Attracting Powerful Economic Expansion (APEX) Act.
2023 HB 2002 created two new sales tax exemptions for purchases by Area Agencies on Aging and Kansas Suicide Prevention HQ.
2024 HB 2098 excluded from sales tax coupons issued by a manufacturer, supplier, or distributor for purposes of reimbursing the seller and created eight new sales tax exemptions. The new exemptions included, among others, purchases of custom meat processing services and, beginning in 2026, all sales tax on sales totaling up to $24,000 per year for Kansas resident military veterans who are 100.0 percent permanently disabled and were honorably discharged.
2024 HB 2465 created a sales tax exemption for purchases by pregnancy resource centers and residential maternity facilities.
2025 SB 98 created a sales tax exemption for purchases by certain firms making eligible investments in a qualified data center.
2025 HB 2275 clarified the exemption for custom meat processing services by excluding it from the requirement in continuing law that an exemption certificate be provided to the seller by the purchaser and removing the burden of proof the service is not subject to tax from sellers who believe such sales to qualify for the exemption.
There are no recent examples of repeal of a sales tax exemption, with the last significant case being the repeal of sales tax on custom computer software by the 2002 Legislature. The sales tax on prewritten computer software (as defined in statute) is still explicitly imposed.
Prior Policy Review
In 1970, the Joint Committee on the State Tax Structure (also known as the Hodge Committee) met to review the State’s tax system, part of which included a review of sales taxes. The Hodge Committee recommended:
Retail sales tax should remain focused on consumption rather than production;
“Consumables” should be exempt as a class rather than by a policy of selective exemption through listing specific items;
The “component-part” rule should be retained and refined; and
Production machinery and equipment should not be exempted generally as a class without consideration of the type of production.
Sales tax exemptions and related policy have also been reviewed by various interim tax committees over the past few decades. Interim tax committees met to review sales tax exemptions and related policy in 2002, 2006, and 2015.
The 2002 Special Committee on Assessment and Taxation specifically considered the sunset of sales tax exemptions in light of frequent discussions to this effect taking place during the regular 2002 Legislative Session. Ultimately, the Special Committee recommended further study of the topic.
The 2006 Special Committee on Assessment and Taxation strongly recommended the standing tax committees develop criteria to evaluate future requests for sales tax exemptions. Criteria suggested included whether or not an exemption:
Helps maintain the sales tax as a final tax on consumption;
Makes the tax more easily administered;
Is targeted to a broad class or to a narrow, special interest;
Establishes an unfair competitive advantage for one group relative to another; and
Causes the overall public benefit to outweigh the loss of revenue.
The 2015 Special Committee on Taxation recommended the standing tax committees develop a continual process to evaluate exemptions by measurable goals and standards, and implement a sunset schedule for current and future tax exemptions, excluding those that are legally required, applicable to governmental entities, or would otherwise result in double taxation if repealed.
Sales tax exemptions were also reviewed as part of more comprehensive reviews of the tax system in the 2004 and 2010 interim sessions, but no substantive recommendations were made in regard to sales taxes.
Additional Policy Considerations
Kansas participates in the Streamlined Sales and Use Tax Agreement (SSUTA), which is a multi-state cooperative agreement intended to streamline the administration of state sales tax systems through voluntary participation by states and retailers. The SSUTA requires member states to agree to certain rules in the administration of their sales and use taxes.
Because of Kansas’ participation in SSUTA, among other things, sellers must be provided advance notice of legislative changes and policy options can occasionally be limited when it comes to specific exemptions. Exemptions for products must be applied in a manner consistent with definitions provided in the agreement, where they exist, and states may not exempt subcategories of items defined within a broader category for purposes of the agreement unless an exception is expressly granted.
By Eric Adell and Edward Penner.
See Taxation for more.