Could Kansas contractors get an exemption or refund of local use tax on out-of-state materials for public works contracts signed before July 1, 2003?

Plain-English summary

Before July 1, 2003, materials a contractor bought out of state for a non-exempt Kansas project owed only the 5.3% state compensating use tax -- no local use tax (except on vehicles and boats). Since July 1, 2003, those materials owe both state compensating use tax and any applicable local (city and/or county) use tax. Where materials are shipped into Kansas, the local tax is the rate where the contractor takes delivery; where the contractor picked them up out of state without paying sales tax, the local tax is the rate at the project site.

Section 4 of 2004 HB 2375 created an exemption from the local compensating use tax for out-of-state materials incorporated into certain public works projects -- a bridge or highway; a street, road or alley; a sewer or sewage system; or a water line, water system, or related improvement -- under a written, binding contract entered before July 1, 2003.

To qualify for the local-use-tax exemption and a refund of local use tax paid on or after July 1, 2003, a contractor had to notify the Department on or before July 10, 2004, prove the pre-July-2003 contract by submitting the enclosed application and a copy of the contract. The exemption then continued for the life of that contract, with special reporting for future out-of-state material purchases on the project.

What this means for you

This was a one-time, deadline-driven relief measure for contractors locked into fixed-price public-works contracts signed before the July 1, 2003 local-use-tax change. The July 10, 2004 notification deadline has long passed, so this notice is historical: it explains why local use tax applies to out-of-state construction materials and how the narrow public-works carve-out worked.

Common questions

Q: When did local use tax start applying to out-of-state construction materials?
A: July 1, 2003. Before that, only the state compensating use tax applied (except on vehicles and boats).

Q: Which projects qualified for the local-use-tax exemption?
A: Certain public works: a bridge or highway; a street, road or alley; a sewer or sewage system; or a water line, water system, or related improvement.

Q: What did a contractor have to do to claim it?
A: Notify the Department on or before July 10, 2004 and prove a written, binding contract entered before July 1, 2003, by submitting the application and a copy of the contract.

Q: How is the local use tax rate determined?
A: If materials are shipped to the contractor in Kansas, the rate is where delivery is taken; if picked up out of state without paying sales tax, the rate is at the construction project site.

Citations and references

• 2004 House Bill 2375, Section 4 -- local compensating use tax exemption for out-of-state materials in certain public-works contracts entered before July 1, 2003.
• Notification/application deadline: July 10, 2004.

Subject

Local Use Tax Exemption Available for Certain Contracts

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 04-02

Original ruling text

Notice
Notice Number: 04-02
Tax Type: Kansas Compensating Tax
Brief Description: Local Use Tax Exemption Available for Certain Contracts
Keywords:
Approval Date: 06/14/2004

Body:
Office of Policy and Research

                                                 June 14, 2004



                                              NOTICE 04-02
                      Local Use Tax Exemption Available for Certain Contracts
                                 Action Required by July 10, 2004

Since July 1, 2003, materials purchased by contractors from out-of-state sources that are incorporated into Kansas
projects not covered by a Project Exemption Certificate (PEC) have been subject to both state compensating use tax,
and any applicable local (city and/or county) use tax. Before July 1, 2003, materials purchased in another state for
incorporation into a non-exempt Kansas project were subject only to the 5.3% state compensating use tax – no local use
tax was imposed on any tangible personal property except vehicles and boats. If materials are shipped to the contractor
in Kansas from outside the state, the local tax due is the one in place where the contractor takes delivery. If the
contractor picked up the materials in another state and did not pay sales tax, the local tax due is the one in place at the
location of the construction project where the goods are used.

Section 4 of 2004 HB 2375 provides an exemption from the local compensating use tax for materials purchased out-of-
state and incorporated into certain public works projects. To be eligible to obtain a refund of the local use tax paid on
materials purchased from outside Kansas, contractors must notify the department before July 10, 2004 that they entered
into a written, binding contract before July 1, 2003, which required them to furnish materials for the construction,
reconstruction, restoration, replacement, repair, equipment or improvement of a:

Bridge or highway;
Street, road or alley;
Sewer or sewage system;
Water line, water system or other related improvement.

To be eligible to claim a local use tax refund and/or exemption on materials, the contractor must notify the Kansas
Department of Revenue on or before July 10, 2004, and provide proof of the contract by completing the enclosed
application and submitting a copy of the contract. The exemption from local use tax on imported materials will continue
for the duration of the contract entered into before July 1, 2003 and reported to the department by the July 10, 2004
deadline.

Once the application and contract copies have been received by the department, you will receive information and
instructions about how to claim the refund of the local use tax paid on imported materials purchased on or after July 1,
2003. You will also be advised about the special reporting procedures necessary to claim the local use tax exemption on
future out-of-state purchases of materials for use in the public works project where the contract was entered into before
July 1, 2003.

Taxpayer Assistance. If you have questions about this notice or the application, please contact the department.
Additional copies of this notice and application are on our web site or may be ordered through the department’s voice
mail forms request line at (785) 296-4937.

Relevant Documentation

SCANNED ATTACHMENTS/DOCUMENTS

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Date Composed: 06/14/2004 Date Modified: 04/07/2006

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