The state of Kansas levies a 5.3% state sales tax on the retail sale, lease or rental of most goods and some services. Local jurisdictions impose additional sales taxes up to 3.625%. The range of total sales tax rates within the state of Kansas is between 5.3% and 8.925%.Use tax is also collected on the consumption, use or storage of goods in Kansas if sales tax was not paid on the purchase of the goods. The use tax rate is the same as the sales tax rate. Returns are to be filed on or before the 25th day of the month following the month in which the purchases were made. For example, purchases made in the month of January should be reported to the state of Kansas on or before February 25th.
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Kansas: Exempt Real Property Labor Services
Kansas Administrative Regulation 92-19-66b states that taxpayers are liable for all labor services involving the installation of tangible personal p
Kansas Administrative Regulation 92-19-66b states that taxpayers are liable for all labor services involving the installation of tangible personal property except for several specific occasions. In the state of Kansas, there are 5 such occasions that are tax exempt. They are:
1. Charges were incurred in relation to restoring, reconstructing or replacing a building or facility that was damaged or destroyed by a fire, tornado, flood, lightning, explosion or earthquake.
2. If the contractor, subcontractor or repairman states in their contract, invoices or other documentation of the transaction that all applicable sales taxes are included in the selling price.
3. The charges made were associated with original construction of real property.
4. If services are rendered to destroy, dismantle, demolish or raze an existing building or facility in association with new construction.
5. The taxpayer has a Project Exempt Certificate as described in K.S.A 79-3606(cc). This issue will be discussed in more depth in a subsequent Kansas Sales & Use Tax Research Bulletin.
At this point, we will analyze in more depth the first four of these points.
1. To qualify for the exemption in place for damages or destruction caused by a fire, tornado, flood, lightning, explosion or earthquake, an affidavit signed by the owner or the building or facility. The affidavit should be kept in the retailer’s files for 3 years. It should be noted that normal deterioration or obsolescence does not qualify for this exemption. A sample affidavit is included:
State of Kansas, County of ______________________, of lawful age, being first duly sworn, deposes and states:
The building or facility located at ____________________________ was damaged or destroyed by one or more of the following (circle choice(s)): fire, flood, tornado, lightning, explosion or earthquake.
___________________________________
Signature of Owner of Building or Facility
Subscribed in my presence and duly sworn to before me, this day of ____________, 20____.
___________________________________
Signature of Notary Public
2. This is a straightforward exemption provided there is documentation. If the contractor does not document this, it will be presumed that the tax was not paid and the taxpayer will be liable for it.
3. Both #3 and #4 relate to the concept of “original construction.” The following qualify as “original construction”:
a. Construction of 1st or initial building or facility on the site
b. Erection of a building on a site where prior structure was razed regardless of whether the old foundation was also demolished
c. Addition of an entire room or floor to an existing building
d. Completion of an unfinished portion of an existing building or facility provided:
i. The original plans or blueprints included this
ii. The time frame is reasonably close to the original construction
iii. The service rendered would have been provided at the time of the original construction except for extraneous circumstances not including depletion of funds or the owner contracting for additional services after taking possession.
4. See discussion in #3. In addition, if charges are incurred solely for the destruction, dismantling, demolition or razing of a building or facility, the charges will be subject to tax. The action must be part of a plan for new original construction as described above.
5. Project Exempt Certificates are described in depth in K.S.A. 79-3606(cc). The benefit of having one is that both the materials and the labor for the project are completely exempt from sales tax. In order to qualify for one the taxpayer must meet one of the following criteria:
a. Hospital, school or political subdivision project, K.S.A. 79-3606(d)
b. U.S. Government project, K.S.A. 79-3606(e)
c. Nonprofit zoo, K.S.A. 79-3606(xx)
d. Qualifying religious organization, K.S.A. 79-3606(aaa)
e. Primary care clinic or health care facility, K.S.A. 79-3606(ccc)
f. Enterprise zone, K.S.A. 79-3606(cc)
To qualify for the (f) Enterprise Zone Project Exempt Certificate, a business must fit into one of the following categories:
1. Certified business qualified by the Secretary of Commerce as meeting the eligibility criteria for the High Performance Incentive Program (HPIP) pursuant to K.S.A. 2003 Supp. 74-50, 131.
2. Manufacturing business under the standard industrial classification codes (SIC) major groups 20 through 39.
3. Non-manufacturing businesses other than retailers that will create at least 20 new full-time positions including:
a. Headquarters of an enterprise
b. Ancillary support
c. Original construction
4. Retail businesses including:
a. Enterprise involved in the sale at retail of taxable goods or services
b. Service providers or licensed professionals set forth in K.S.A. 17-2707
c. Bank, savings and loan or other lending institution
d. Commercial enterprise whose primary business activity includes the sale of insurance
e. Commercial enterprises whose primary business activity includes the sale of services such as, but not limited to:
i. Barber shops
ii. Beauty shops
iii. Photographic studios
iv. Funeral services
f. Lessor who is constructing, re-constructing, remodeling or enlarging a facility which will be leased for a period of at least 5 years to a business that would otherwise qualify for the exemption if they were to construct, re-construct, remodel or enlarge the facility itself. If there are multiple lessees, each must qualify for the exemption.
The following are exceptions to the exemptions described above in this research bulletin.
1. Labor services incurred by an Interstate Common Carrier (ICC) to remodel a building or facility are taxable unless a Project Exempt Certificate has been issued.
2. When a railroad lays new track, the labor & materials involved in the project are both taxable unless a Project Exempt Certificate has been issued.
As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability. If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at info@salesandusetax.com.
Citations:
Kansas Administrative Regulations 92-19-66b:
Kansas Statutes Annotated 79-3606(cc):
www.salesandusetax.com/sales-and-use-tax/state/kansas
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