Kentucky Sales Tax Exemption for Forklifts Used in Manufacturing

The TAM issued to Agile has clarified the taxability of various forklift-related purchases and whether they qualify for the Kentucky sales tax exemption for forklifts used in manufacturing. Here are some of the highlights from that TAM. 

Replacement Forklifts – The purchase or lease of new forklifts that are predominantly used directly in the manufacturing process and increase production capacity (measured by actual units of production) qualify for the exemption. Short-term forklift rentals will not qualify for the exemption because they do not meet the first-time incorporation requirement in KRS 139.010(22)(a)(2). 

Predominant Use – To meet the predominant use threshold referenced above, forklifts must be used at least 50% of the time in an exempt usage manner to qualify for exemption. Forklifts with multiple uses within the facility that are used less than 50% in production activities will not qualify. 

Exempt Usage – As provided in KRS 139.010(13), the manufacturing process commences with the movement of raw materials from storage into a continuous unbroken and integrated process and ends when the finished product is packaged and ready for sale.  Consequently, forklifts that are used to remove raw materials and place into production, are used to move work in process throughout the plant and are used to convey the finished product into the packaging area for final wrapping will qualify for exemption.  Forklifts that are used for raw material storage, in-process storage, post-production storage and shipping are not activities directly within the manufacturing process. 

Fuel – All types of fuel (off-road diesel, propane, and electricity) used to power forklifts that are predominantly directly used within the manufacturing process may qualify for the for the partial energy exemption if the manufacturer qualifies and holds an Energy Direct Pay Authorization.  Kentucky does provide an exemption for energy costs that exceed 3% of a manufacturer’s total production costs, and forklift propane, and other forklift energy costs can be included as part of the numerator when calculating a manufacturer's total exempt energy usage percentage.  The partial energy exemption is discussed in greater detail in KRS 139.480(3). 

Consumables – Consumable supplies such as grease, motor oil, hydraulic fluid and coolant that are required to maintain forklifts predominantly directly used in the manufacturing process will qualify for exemption per KRS 139.470(9). 

Repair Labor – Separately stated labor charges to repair forklifts or install parts onto a forklift that is directly used in the manufacturing process will qualify for exemption as provided in KRS 139.470(22). 

Repair / Replacement Parts – Repair or replacement parts are taxable as they are specifically excluded from the new and expanded machinery exemption per KRS 139.010(22)(b). 

Kentucky manufacturers that paid sales tax in error to vendors on their forklift purchases, leases or repair labor services will have to request the sales tax refund directly from their vendors.  However, form 51A209 Sales and Use Tax Refund Application can be used in situations where use tax was self-assessed and paid directly to the Kentucky Department of Revenue in error. 

The eligible lookback period to recover any overpaid sales taxes in Kentucky is forty-eight months. The consultants at Agile Consulting Group have experience in recovering overpaid sales taxes from vendors charging Kentucky sales taxes in error and the Kentucky Department of Revenue, and can assist any Kentucky manufacturer with this cumbersome process.