Does a Kansas manufacturer charge sales tax on separately invoiced customized dies and artwork that stay in Kansas?

Plain-English summary

The Department addressed how a Kansas manufacturer should treat separately invoiced charges for customized tooling — vacuum form dies, cutting dies, artwork (film), silk screens, and printing plates — that it keeps in Kansas for possible reorders. The short version: a sale to a reseller is wholly exempt as a sale for resale, but if the product ships to an out-of-state end user while the tooling stays in Kansas, the charges for that tooling are taxable. Because the letter did not identify the taxpayer, "[t]his response is not a private letter ruling."

The facts described: the manufacturer creates or buys customized dies and artwork to produce a specific product; most customers are resellers (in Kansas or out of state), while a small number of out-of-state customers are end users. The invoice separately line-items the tooling and the product. The product is transported to the customer, but the dies and artwork are retained by the manufacturer for possible future reorders (and destroyed after a few years if unused).

The Department's two answers:

• Sale to a reseller — fully exempt. "The sale of the manufactured item by a Kansas manufacturer to a bona fide reseller of such item for which the reseller is billed for the manufactured item and customized items, e.g. dies, artwork, silk screens or printing plates, would be exempt from Kansas sales and compensating taxes in total." Everything on the invoice rides on the resale exemption.
• Product to an out-of-state end user, tooling stays in Kansas — tax the tooling. For the pattern where "the customized items . . . remain in Kansas and the manufactured product is shipped to an end user[] out of state," the answer is "Yes" — the circumstances "would require the Kansas manufacturer to collect sales tax on charges for other items such as dies, artwork etc." The retained tooling is used and kept in Kansas, so its charges are taxable even though the product itself leaves the state.

What this means for you

Manufacturers selling to resellers

If your customer is a bona fide reseller and you bill them for both the product and the customized tooling, the whole invoice is exempt as a sale for resale (get and keep a valid resale exemption certificate). No Kansas sales or compensating tax applies to any line, including the dies and artwork.

Manufacturers selling to end users

When the buyer is the end user of the product and the tooling stays behind in Kansas, treat the tooling charges as taxable Kansas sales — the product may ship out of state, but the dies and artwork remain and are consumed here. Collect Kansas sales tax on those line items.

Why the situs of the tooling matters

The distinction is not just resale-versus-retail; it is also that the customized tooling never leaves Kansas. Retained in-state property that you charge the customer for is taxable to a non-reseller customer, separate from how the finished product is delivered.

Common questions

Q: Is a sale to a reseller taxable in Kansas?
A: No. A sale to a bona fide reseller — including the separately billed dies, artwork, silk screens, and printing plates — is exempt from Kansas sales and compensating taxes in total.

Q: What if the product ships to an out-of-state end user but the dies stay in Kansas?
A: The manufacturer must collect Kansas sales tax on the charges for the retained items such as dies and artwork, even though the product leaves the state.

Q: Was this a private letter ruling?
A: No. Because the taxpayer was not identified, the Department treated it as an informational opinion rather than a private letter ruling.

Citations and references

• Resale exemption — a sale of the manufactured item and the separately billed customized tooling to a bona fide reseller is exempt from Kansas sales and compensating taxes in total, as a sale for resale.
• Tax on retained in-Kansas tooling — when the finished product ships to an out-of-state end user but the customized dies and artwork remain in Kansas, the manufacturer must collect Kansas sales tax on the charges for those retained items. (The Department cited no K.S.A. section in this letter.)

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1998-04

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

August 14, 1998

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Dear Ms. XXXXXXXXX:

The purpose of this letter is to respond to your letter dated June 24, 1998. This response is not a private letter ruling as you have not identified the taxpayer you represent.

In your letter you generally stated:

A Kansas manufacturer creates or purchases customized vacuum form dies made from aluminum, cutting dies, and artwork (film) for silk screens or printing plates in order to produce a specific product for its customer. Most of the customers are resellers located either out of state or in Kansas. A small number of customers located out of state are end users of the product. The invoice contains a line item charge for the vacuum form dies, cutting dies, artwork, silk screens of printing plates, and a separate line item charge for the product. The product is transported to the customer’s location where they take possession of the product. The dies, artwork, silk screens or printing plates are not sent out to the customer since the manufacturer retains them for possible future reorders. After a few years, if the customized items have not been utilized, they are destroyed.

You asked:

1. Is it appropriate for the manufacturer to charge sales tax on its invoices for the customized item and the manufactured products to customers who are reselling the manufactured product?

Answer: The sale of the manufactured item by a Kansas manufacturer to a bona fide reseller of such item for which the reseller is billed for the manufactured item and customized items, e.g. dies, artwork, silk screens or printing plates, would be exempt from Kansas sales and compensating taxes in total.

2. Should the Kansas manufacturer charge sales tax on its invoices for the customized items that remain in Kansas and the manufactured product is shipped to an end users out of state.

Answer: Yes, the fact pattern this question and given circumstances would require the Kansas manufacturer to collect sales tax on charges for other items such as dies, artwork etc.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 09/08/1998 Date Modified: 10/10/2001

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