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Equipment for New and Expanded Industry Exempt from Sales and Use Tax

03.17.2009

In German Cuisine, LLC v. Finance and Administration Cabinet, File No. K-07-R-03 (KBTA Feb. 5, 2009), the Kentucky Board of Tax Appeals (“Board”) held that equipment purchased by German Cuisine, LLC (“German Cuisine”) was sufficiently separate from its earlier operation to be exempt under KRS 139.480 [Property Exempt from Sales and Use Tax].

German Cuisine produced and sold authentic German meats and sausages in a retail deli store. In 2002, German Cuisine’s business expanded to supply Hofbrauhaus Newport, LLC (“Hofbrauhaus”), a large, German style restaurant, with all of its meats. In doing so, German Cuisine purchased new equipment, including a Cyclone Bowl Cutter, stuffer, smokehouse and walk-in refrigerator. The new equipment was installed at a location next to its retail store and did not replace the old machinery used in its retail store.

The Department of Revenue determined that the new equipment purchased by German Cuisine to satisfy the Hofbrauhaus contract was not used in a “separate plant facility” and was therefore taxable.

The Board disagreed and held that such equipment was used directly in the manufacturing process to make sausage and process meats for the first time in Kentucky and was not purchased to replace machinery in the deli operation. Accordingly, the equipment was held to be exempt from sales and use tax as machinery for “new and expanded industry.”

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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