How does Kansas apply local tax to in-state vehicle sales and long-term leases after July 1, 2002?

Plain-English summary

Effective July 1, 2002, 2002 House Bill 3032 imposed a local compensating use tax on in-state sales and long-term leases of vehicles. In essence, the buyer pays the higher of the sales tax rate at (1) the seller's place of business or (2) the buyer's residence or place of business, when that is the vehicle registration address.

• What's covered: Kansas sales and long-term leases (a lease over 28 consecutive days) of vehicles that must be registered in Kansas for road use — cars, trucks (any weight), motorcycles, motorized bicycles, and trailers.
• Out-of-state purchases later registered in Kansas still follow the existing rule (Kansas state and local use tax at the purchaser's residence/place of business) and are not changed by HB3032.
• Timing: applies to sales where title transfers on/after July 1, 2002, and to every lease payment received on/after July 1, 2002 (each lease payment is a separate transaction), regardless of when the lease began.
• Sales — how the tax is paid: the dealer collects its own location's rate at sale; if the buyer's home rate is higher, the buyer pays the difference to the County Treasurer at registration. If the buyer already paid the higher rate at the dealer, no additional tax and no rebate. On a purchase from an individual, the County Treasurer collects the full combined rate at the buyer's registration address.
• Leases — how the tax is paid: if the lessor's rate is higher than the customer's, the lessor just reports its own rate on the regular sales tax return. If the lessor's rate is lower, the lessor also reports the difference between its local rate and the customer's local rate on Form CT-4L (Kansas Compensating Use Tax Return for Vehicle Leases).

Later development: the 2003 Streamlined Sales Tax legislation changed the lease/rental sourcing rules (see Notice 03-05), which also ended the separate Form CT-4L local-tax reporting on leases. But the 2003 changes expressly did not apply to sales of vehicles, so this notice continues to govern vehicle sales.

What this means for you

If you bought or leased a vehicle registered in Kansas on or after July 1, 2002, you effectively pay the higher of the dealer's or your home local rate. Dealers collect their own rate; you settle any difference at the County Treasurer when you register. For leases, the "highest rate" was collected via the lessor and Form CT-4L until the 2003 rules (Notice 03-05) changed lease sourcing — but vehicle sales still follow this notice.

Common questions

Q: Which local rate applies when I buy a car in Kansas?
A: The higher of the dealer's location rate or your registration-address rate; you pay any difference to the County Treasurer at registration.

Q: What counts as a long-term lease?
A: A lease over 28 consecutive days of a vehicle required to be registered in Kansas.

Q: I bought the vehicle out of state. Does HB3032 change my tax?
A: No. Out-of-state purchases registered in Kansas still follow the use tax rate at your residence/place of business.

Q: Does this still apply after the 2003 sourcing changes?
A: For vehicle sales, yes. The 2003 changes (Notice 03-05) altered lease/rental sourcing but not sales of vehicles.

Citations and references

• 2002 House Bill 3032 -- local compensating use tax on in-state vehicle sales and long-term leases (effective July 1, 2002). Form CT-4L.
• Notice 03-05 -- later change to vehicle lease/rental sourcing under the 2003 Streamlined legislation.

Subject

2002 House Bill 3032 - Local Tax on Instate Sales of Vehicles

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 02-05

Original ruling text

Notice
Notice Number: 02-05
Tax Type: Kansas Compensating Tax
Brief Description: Local compensating use tax on sales and long-term leases of vehicles within
Kansas.
Keywords:
Approval Date: 06/25/2002

Body:
Office of the Secretary

                                                      NOTICE 02-05
                    2002 House Bill 3032 - LOCAL TAX ON INSTATE SALES OF VEHICLES

Effective July 1, 2002 the Kansas legislature imposed a local compensating use tax on sales and long-term leases of vehicles within
Kansas (2002 House Bill 3032). In essence, this law requires purchasers of vehicles to pay the highest sales tax rate in effect at
either: 1) the seller’s place of business or 2) the customer’s residence (if that is the vehicle registration address) or place of business
(if that is the vehicle registration address).

What sales are affected:

Kansas sales and long-term leases (a lease over 28 consecutive days) of vehicles which are required to be registered in Kansas for
operation on public streets and highways are affected by this legislation. This would include automobiles, trucks (regardless of gross
weight), motorcycles, motorized bicycles and trailers.

Purchases and leases of vehicles outside the state of Kansas which are subsequently registered in Kansas continue to be subject to the
Kansas state and local compensating use tax in effect at the purchaser’s residence or place of business, and are not affected by the
provisions of 2002 House Bill 3032.

When is the tax imposed:

This law is applicable to all sales of vehicles where title transfers on or after July 1, 2002. Since each lease payment is considered a
separate transaction, House Bill 3032 is applicable to all lease payments received on or after July 1, 2002 regardless of the lease
origin date.

When is the tax due:

Sales of Vehicles:
When the rate of tax is higher at the purchaser’s residence or place of business than the rate of tax in effect at the place of sale, the
purchaser will pay the difference between the two tax rates to the County Treasurer at the time of vehicle registration.

Long-term Leases of Vehicles:
When the rate of tax is higher at the lessee’s residence or place of business (vehicle registration address) than the rate of tax in effect
at the place of sale (lease), the lessee will pay the difference between the two tax rates to the lessor on each lease payment.

Examples:

Purchases from dealerships:
Example #1: A car is purchased from an automotive dealership located in Shawnee County Kansas by a customer residing in
Lawrence, Kansas. The sales tax rate in Shawnee County is 6.2% (5.3% State and 0.9% Shawnee County). The sales tax rate in
Lawrence is 7.3% (5.3% State, 1% Douglas county, 1% Lawrence). At the time of sale, the dealership will collect the sales tax in
effect at the dealership – 6.2% in Shawnee County. When the purchaser registers the car, the Douglas County Treasurer will charge
an additional 1.1% local compensating use tax, on the difference between the Shawnee County rate of 6.2% and the Lawrence,

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Douglas County rate of 7.3%, and report it on the VIPS system.

Example #2: A car is purchased from an automotive dealership located in Kansas City, Kansas by a customer residing in Topeka,
Kansas. The combined sales tax rate in Kansas City, Kansas is 7.3% (5.3% State, 1% Wyandotte County and 1% Kansas City). The
combined sales tax rate in Topeka is 7.2% (5.3% State, .9% Shawnee County, 1% Topeka). At the time of sale, the dealership will
collect the sales tax in effect at the dealership – 7.3% in Kansas City, Kansas. When the Topeka purchaser registers the car, the
Shawnee County Treasurer will not charge any additional tax since the purchaser has already paid the highest tax rate to the
dealership. The purchaser is not entitled to a rebate of local tax.

Purchases from individuals:
Example #3: A pickup is purchased from an individual in Salina, Kansas by an individual residing in Rush Center, Kansas. The
combined sales tax rate in Salina is 7.05% (5.3% State, 1% Saline County, .75% Salina). The combined sales tax rate in Rush Center
is 5.3% (5.3% State). When the purchaser registers the pickup, the Rush County Treasurer will collect the total 7.05% retailers’ sales
tax (5.3% State, 1% Saline County and .75% Salina).

Example #4: A pickup is purchased from an individual in Gridley, Kansas by an individual residing in Garden City, Kansas. The
combined sales tax rate in Gridley is 5.3% (5.3% State). The combined sales tax rate in Garden City is 7.05% (5.3% State, .75%
Finney County, .1% Garden City). When the purchaser registers the pickup, the Finney County Treasurer will collect the total 7.05%
tax (5.3% retailers’ sales tax, and .75% Finney County & 1% Garden City) local compensating use tax) and report it on the VIPS
system.

Leases:

When the Kansas retailers’ sales tax rate in effect at a lessor’s place of business is HIGHER than the rate of combined (State, City
and/or County rates) sales tax rate in effect at the customer’s residence (or place of business), lessors will report the combined rate of
sales tax in effect at their place of business on their regular sales tax form (Form ST-16 or ST-36, or electronically via TeleFile or PC
File). No other action is required.

However, when the Kansas retailers’ sales tax rate in effect at a lessor’s place of business is LOWER than the combined sales tax
rate in effect at the customer’s residence, lessors will report the rate of sales tax in effect at their place of business on their regular
sales tax return. In addition, the lessor will also report the difference between the local (city and/or county) rate in effect at their
place of business and the local rate of tax in effect at the customer’s residence on Form CT-4L, Kansas Compensating Use Tax
Return for Vehicle Leases. Form CT-4L is available from the department’s forms order line: (785) 296-4937 or web site:
www.ksrevenue.org

Example #5: A car is leased from an automotive dealership located in Shawnee County by a customer who resides in Lawrence,
Douglas County for $500.00 per month plus sales tax. The combined rate in Shawnee County is 6.2% (5.3% State, .9% Shawnee
County). The combined rate in Lawrence is 7.3% (5.3% State, 1% Douglas County, 1% Lawrence). The lessor will collect $31 ($500
X .062 = $31) and remit the $31 on its regular retailers’ sales tax return. In addition, the lessor will collect the amount of the
difference between the rate of tax in effect at its place of business and the customer’s residence and report this local compensating
use tax on Form CT-4L. In this example, the difference is 1.1% or $500 X .011 = $5.50 of local compensating use tax.

If you have any questions about this Notice, or about your registration and reporting responsibilities, please contact customer service
representatives in our Topeka office. In Topeka call 368-8222. Outside of Topeka call toll free at 1-877-526-7738 and press “1” for a
Touch Tone Phone (listen briefly) press ”5” for Business Taxes (listen briefly) and press “2” for Sales Tax.

                                                  Kansas Department of Revenue
                                                  Docking State Office Building
                                                        915 SW Harrison
                                                     Topeka, Kansas 66625

Date Composed: 06/26/2002 Date Modified: 06/26/2002

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