Which local tax rate applies to Kansas motor-vehicle leases and rentals starting July 1, 2003?

Plain-English summary

As part of the 2003 Streamlined Sales Tax legislation (2003 House Bill 2005), effective July 1, 2003, Kansas set new rules for the local tax rate on leases and rentals of motor vehicles, trailers, semi-trailers, and aircraft that do not qualify as interstate "transportation equipment":

• Lease/rental with recurring periodic payments: taxed at the combined Kansas rate in effect at the vehicle's primary location in Kansas.
• Lease/rental without recurring periodic payments: taxed at the combined rate where the customer receives the vehicle.

The rule applies to each payment due on or after July 1, 2003, no matter when the lease or rental began. Examples from the notice: a car leased to a Lawrence resident is taxed on each payment at Lawrence's 7.3% (state 5.3% + county 1% + city 1%); a car leased through a Missouri dealer to a customer in unincorporated Douglas County is taxed via retailers' compensating use tax at Douglas County's 6.3%.

"Transportation equipment" (excluded) means, generally, railcars/locomotives carrying property in interstate commerce; trucks/tractors over 10,000 lbs GVWR, trailers, semi-trailers, or buses registered under the International Registration Plan and operated under federal interstate authority; certificated interstate aircraft; and containers/components for such equipment.

Key transition points: this replaces the 2002 HB 3032 rule (which had charged the higher of the seller's or customer's rate) for leases and rentals — but not for sales of vehicles, which still follow Notice 02-05. Businesses that had reported local tax on leases using Form CT-4L no longer collect or remit that tax on lease payments due after June 30, 2003. Going forward, lease/rental receipts are reported on Form ST-36/PC File (retailers' sales tax) or Form CT-114 (retailers' compensating use tax).

What this means for you

If you lease or rent vehicles in Kansas, from July 1, 2003 the local rate turns on how the customer pays. Recurring monthly leases follow the vehicle's home base (primary location); one-time rentals follow where the customer picks the vehicle up. Apply the new rate to every payment due on or after July 1, 2003 — even on leases signed years earlier — and stop using Form CT-4L for lease local tax. Sales of vehicles are unaffected (see Notice 02-05).

Common questions

Q: I lease cars with monthly payments. Which rate applies?
A: The combined rate at the vehicle's primary location in Kansas, applied to each payment due on or after July 1, 2003.

Q: I rent cars for a lump sum with no periodic payments. Which rate?
A: The combined rate where the customer takes delivery of the vehicle (typically your rental location).

Q: Does this change the tax on selling a vehicle?
A: No. This notice covers only leases and rentals; vehicle sales still follow Notice 02-05.

Q: My lease was signed in 2000. Does the new rate apply?
A: Yes — the rule applies to lease payments due on or after July 1, 2003, regardless of when the lease was entered into.

Q: What is "transportation equipment," and why does it matter?
A: It is certain interstate-commerce railcars, heavy trucks/trailers/buses under IRP and federal authority, and certificated aircraft; leases/rentals of that equipment are excluded from these rules.

Citations and references

• 2003 House Bill 2005 -- Streamlined Sales Tax legislation, effective July 1, 2003.
• 2002 House Bill 3032 -- prior "highest rate" vehicle sourcing rule, superseded for leases/rentals.
• Notice 02-05 -- continues to govern sales of vehicles.
• Forms ST-36 / PC File (sales tax), CT-114 (retailers' compensating use tax); former Form CT-4L discontinued for lease local tax.

Subject

Local Sales or Compensating Use Tax on Vehicle Leases/Rentals

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 03-05

Original ruling text

Notice
Notice Number: 03-05
Tax Type: Kansas Compensating Tax; Kansas Retailers' Sales Tax
Brief Description: Local sales or compensating use tax on vehicle leases/rentals
Keywords:
Effective Date: 07/01/2003
Approval Date: 06/09/2003

Body:

                                    Office of Policy & Research
                                               NOTICE 03-05
                    LOCAL SALES OR COMPENSATING USE TAX
                         ON VEHICLE LEASES/RENTALS

The 2003 Kansas legislature enacted sales and compensating use tax changes that take effect July 1,
2003 . These changes are part of a coordinated effort involving thirty-nine states and the District of
Columbia referred to as the “Streamlined Sales Tax Project”.

WHICH TAX RATE?

In essence, the new legislation requires that the:

 1. lease or rental of a motor vehicle, with recurring periodic payments , is subject to the combined
 Kansas sales or compensating use tax rate in effect at the motor vehicle’s primary location in Kansas;
 2. lease or rental of a motor vehicle, that doesnot require recurring periodic payments , is subject
 to the combined Kansas sales or compensating use tax rate in effect at the location where the
 customer receives the motor vehicle.

What leases/rentals are affected:

All leases (short and long-term) and rentals of motor vehicles, trailers, semi-trailers and aircraft that do not
qualify as “transportation equipment” are affected by this legislation. This would include automobiles,
trucks, motorcycles, trailers, semi-trailers and aircraft that are leased or rented.

Qualifying “Transportation equipment” must be used in interstate commerce, and means any of the
following:

 1. locomotives and railcars that are utilized for the carriage of property in interstate commerce;
 2. trucks and truck-tractors with a gross vehicle weight rating (GVWR) of 10,001 pounds or greater,
 trailers, semi-trailers or passenger buses that are:
             A. Registered through the international registration plan; and
             B. operated under authority of a carrier authorized and certificated by the United States
             department of transportation or another federal or a foreign authority to engage in the
             carriage of persons or property in interstate or foreign commerce;
             3. aircraft that are operated by air carriers authorized and certificated by the United States
             department of transportation or another federal or a foreign authority to engage in the
             carriage of persons or property in interstate or foreign commerce; and
             D. containers designed for use on and component parts attached or secured on railcars,

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           trucks, truck-trailers, semi-trailers, buses or aircraft described in (d)(1), (d)(2) or (d)(3)
           above.

When does the new law go into effect?

The effective date of this law is July 1, 2003, and is applicable to each “ ;payment” or “periodic payment”.
Therefore, the new law is applicable to all lease/rental payments due on or after July 1, 2003 regardless of
when the lease or rental was entered into.

Examples – Lease/Rental With Periodic Payments Required:

1 – On July 1, 2003 a car is leased from a Kansas automotive dealership by a customer who resides in

Lawrence, Kansas for $500.00 per month for 48 months, plus sales tax. The rate of Kansas retailers’ sales
tax to be collected on each lease payment by the Kansas dealership is the rate of sales tax in effect at the
vehicle’s primary location . This would be the combined State (5.3%), County (1%) and City (1%) rate of
tax in effect in Lawrence, Kansas (total combined sales tax rate of 7.3%).

2 – On August 1, 2000 a car is leased from a Kansas automotive dealership by a customer who resides in

Lawrence, Kansas for $500.00 per month for 48 months, plus sales tax. The rate of Kansas retailers’ sales
to be collected on each lease payment due ON OR AFTER JULY 1, 2003 is the rate of sales tax in effect at
the vehicle’s primary location . This would be the combined State (5.3%), County (1%) and City (1%) rate
of tax in effect in Lawrence, Kansas (total combined sales tax rate of 7.3%).

3 – On July 1, 2003 a car is leased from GMAC via a Missouri automotive dealership by a customer who

resides outside of the city limits of Lawrence, Kansas but, within Douglas County for $500.00 per month for
48 months, plus tax. The rate of Kansas retailers’ compensating use tax due on each lease payment
received by GMAC is the same as the rate of sales tax in effect at the vehicle’s primary location . This
would be the combined State (5.3%), County (1%) rate of tax in effect in Douglas County, Kansas (total
combined compensating tax rate of 6.3%).

Examples – Lease/Rental Without Periodic Payments Required:

1 – On July 1, 2003 a car is rented from a Liberal, Kansas business by a customer for $150.00 per week

for two weeks, plus sales tax, all payable at the time the customer takes delivery of the car. The rate of
Kansas retailers’ sales to be collected on $300 ($150 X 2) payment received is the rate of sales tax in
effect where the customer took delivery . Typically, customers take delivery at the rental business’ location.
In this example, the combined rate of sales tax due is the rate in effect in Liberal, Kansas. This would be
the combined State (5.3%), County (1%) and City (1%) rate of tax in effect in Liberal, Kansas (total
combined sales tax rate of 7.3%).

The 2003 legislation changes last year’s legislation (2002 House Bill 3032) which required, in general, for
purchasers and lessees of vehicles to pay the highest sales tax rate in effect at either the seller’s location
or the customer’s location. The 2003 changes donot apply to sales of vehicles , and the department’s
NOTICE 02-05 with regard to sales of vehicles should continue to be followed. Only leases and rentals of
motor vehicles, trailers, semi-trailers and aircraft that donot qualify as “transportation equipment” are
affected by this new legislation.

Entities who are currently reporting the Local Compensating Tax, on Form CT-4L, (the amount of tax due
when the rate of tax at the dealer’s location was lower than the rate in effect at the registered address of
the vehicle) on leases will nolonger be required to collect, report or remit that tax on lease payments due
after June 30, 2003. Beginning July 1, 2003, the above information and examples with regard to leases
and rentals of motor vehicles, are to be followed instead.

In summary, the gross receipts received on the lease or rental of motor vehicles, trailers, semi-trailers and
aircraft (that do not qualify as “ transportation equipment”), on and after July 1, 2003, will be subject to
either to:

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 1. Kansas retailers’ sales tax* and it will reported on Form ST-36 or PC File.
 2. Kansas retailers’ compensating use tax** and it will be reported on Form CT-114

*Kansas retailers’ sales tax is due when the lease/rental transaction occurs in the state of Kansas and the motor vehicle,
trailer, semi-trailer or aircraft’s primary location is located within the state of Kansas.

**Kansas retailers’ compensating use tax is due when the lease/rental transaction takes place outside of the state of
Kansas and the motor vehicle, trailer, semi-trailer or aircraft’s primary location is located within the state of Kansas.

             DOCKING STATE OFFICE BUILDING, 915 SW HARRISON ST., TOPEKA, KS 66612-1588

Voice 785-296-3081 Fax 785-296-7928 http://www.ksrevenue.org/

Date Composed: 06/10/2003 Date Modified: 06/16/2003

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