Should Kansas local sales tax on automobile sales be based on the buyer's residence instead of the dealership's location?

Plain-English summary

A requester relayed complaints from area automobile dealers about how Kansas local sales tax on car sales is sourced. The dealers objected that local sales tax "is imposed based on the location of the dealership rather than on the location of the buyer," and the requester agreed it would be more equitable to tax car sales based on the buyer's residence. The Department declined to change the rule, explaining that this is a legislative policy matter — not something tax administrators can or should override.

The Department pointed out that the requester's own attachment showed the Kansas automobile dealers association had pressed this issue with the Legislature "since 1988 and cannot get support from [the] Legislature due to Johnson County" — underscoring that it is "a very political issue." Because "the Kansas legislature has considered and resolved" the question, "it would be inappropriate for state tax administrators to try to overrule the judgment of elected Kansas representatives at this late date." The Department encouraged the requester to "work with your elected officials," calling that "the appropriate method for changing this tax policy."

The Department also offered the policy rationale for sourcing local sales tax to the retailer's location: "Retail businesses place demands on local governments, including the expenses of police and fire protection, roads, sewers, and various other services," so "[t]here is nothing inappropriate about the legislature's desire to return the sales tax revenues to the cities and counties that bear these burdens." It acknowledged, however, that "inequality may arise because rate differences favor retailers in some locations over retailers in other locations."

What this means for you

Automobile dealers

Kansas local sales tax on a vehicle sale is based on the dealership's location, not the buyer's residence. That sourcing is set by the Legislature, and the Department will not change it administratively.

Anyone seeking a change

If you want the sourcing rule changed, the path is legislative — work with your elected representatives and senators. The Department views this as a policy decision reserved to the Legislature.

Why the rule works this way

Sourcing local tax to the retailer's location channels the revenue to the local governments that provide services to the retail business (police, fire, roads, sewers). The trade-off the Department acknowledges is that differing local rates can make one location more attractive to shoppers than another.

Common questions

Q: Is Kansas local sales tax on a car based on where the dealer is or where the buyer lives?
A: On the dealership's location. The Department declined to shift it to the buyer's residence.

Q: Can the Department change this rule?
A: No. It treats the sourcing rule as a legislative policy the Legislature has already resolved; changing it requires legislative action.

Q: Why is local tax sourced to the retailer's location?
A: Because retail businesses draw on local government services, so returning the tax revenue to the cities and counties that bear those costs is considered reasonable.

Citations and references

• The letter addresses a legislative policy question and does not cite a specific statute for its holding. It explains that the situs of local sales tax on automobile sales (the dealership's location) is set by the Legislature, that the Kansas automobile dealers association has unsuccessfully sought a change since 1988, and that any change is a matter for elected officials rather than tax administrators.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1999-02

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

January 5, 1999

XXXX
XXXX
XXXX

RE: You letter dated October 30, 1998

Dear XXXX:

I have been asked to respond to your letter dated October 30, 1998. You recently surveyed area businesses to determine their needs and concerns. Most of the responses about state taxes apparently came from automobile dealers. They complain that local sales tax is imposed based on the location of the dealership rather than on the location of the buyer. You agree with the dealerships and assert that it would be more equitable to tax automobile sales based on the location of the residence of buyer instead of the location of the dealership.

Your attachment points out that the Kansas automobile dealers association has presented this issue to the Kansas legislature “since 1988 and cannot get support from [the] Legislature due to Johnson County.” Your statement summarizes why this is a very political issue. It is an issue that the Kansas legislature has considered and resolved and is something that the legislature alone should change. Given the history of this issue and our democratic form of government, it would be inappropriate for state tax administrators to try to overrule the judgment of elected Kansas representatives at this late date. Accordingly, we encourage you to work with your elected officials. This is the appropriate method for changing this tax policy.

On a practical basis, there are many sound reasons for imposing local sales tax based on the retailer’s location. Retail businesses place demands on local governments, including the expenses of police and fire protection, roads, sewers, and various other services that provide for the needs of retail businesses. There is nothing inappropriate about the legislature’s desire to return the sales tax revenues to the cities and counties that bear these burdens. However, inequality may arise because rate differences favor retailers in some locations over retailers in other locations.

Thank you for sharing your information with us. We very much appreciate hearing such concerns and comments and would like to continue to be informed about the issues that affect Kansas businesses. We welcome the opportunity to work with you and any other group that wishes to improve Kansas tax laws. If you wish to discuss this matter further, please call me at (785) 296-4008.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 03/03/1999 Date Modified: 10/10/2001

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