Is installing tangible personal property a taxable service in Kansas, and can a reseller buy that installation service free of tax?

Plain-English summary

A distributor of graphic arts supplies and equipment — which also installs and repairs equipment through a nationwide service network — asked two questions. Its California customer buys installation service from it for resale to the customer's own clients in Kansas; the installation charge is separately stated on the invoice to the reseller, the installed property stays tangible personal property, and there is no separate installation contract. The distributor asked whether installing tangible personal property is subject to Kansas sales tax and, if so, when it can invoice the reseller free of tax. The Department's opinion is that installation is a taxable service, but a reseller can buy it tax-free with a resale exemption certificate.

The Department set out the governing law. K.S.A. 79-3603(p) imposes sales tax on "the gross receipts received for the service of installing . . . tangible personal property which when installed or applied is not being held for sale in the regular course of business," whether or not the property becomes part of real estate — "except that no tax shall be imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building or facility." The letter quoted the statutory definition of "original construction" (K.S.A. 79-3603(p)(1)), which covers first/initial construction, adding an entire room or floor, finishing an unfinished portion, and rebuilding after certain casualties — but not ordinary remodeling or renovation.

It also quoted K.A.R. 92-19-66b: each contractor, subcontractor, and repairman is responsible for collecting and remitting sales tax on taxable services performed for others, and "shall not issue or accept a resale exemption certificate that claims an exemption from sales tax for services being purchased from or sold to another contractor, subcontractor, or repairman."

Applying this, the Department concluded: tax is imposed on the service of installing tangible personal property, and "[t]he tax must be imposed, collected and remitted by the person performing the service." Critically for the distributor, "[a]nother retailer may purchase this service under a resale exemption certificate." The Department also noted other situations where the tax would not be collected — "if the service is performed in the original construction of a building or facility; or if performed pursuant to a[n] enterprise zone project exemption certificate" — and said there may be other exempt occasions.

What this means for you

Installers of tangible personal property

Charging to install tangible personal property (that is not itself being held for sale) is a taxable service in Kansas. If you perform the installation, you generally must collect and remit the sales tax on that labor.

Selling installation to a reseller

When another retailer buys your installation service to resell it, that retailer can give you a resale exemption certificate, and you invoice the service free of tax. That is how the graphic arts distributor could bill its California reseller without charging tax.

Original construction and other exceptions

Installation performed in connection with the original construction of a building or facility is not taxed, and installation under an enterprise-zone project exemption certificate can also be exempt. But note the limit in K.A.R. 92-19-66b: contractors, subcontractors, and repairmen generally cannot use resale exemption certificates for services bought from or sold to one another.

Common questions

Q: Is installing tangible personal property taxable in Kansas?
A: Yes. K.S.A. 79-3603(p) imposes sales tax on the installation service, collected and remitted by the person performing it — unless it is part of original construction or another exemption applies.

Q: Can a reseller buy the installation service without paying tax?
A: Yes. Another retailer may purchase the installation service under a resale exemption certificate, so the installer invoices it free of tax.

Q: When is installation not taxed?
A: When it is done in connection with the original construction of a building or facility (K.S.A. 79-3603(p)(1)), or under an enterprise-zone project exemption certificate, among other possible exemptions.

Citations and references

• K.S.A. 79-3603(p) (including the "original construction" definition in 79-3603(p)(1)) — imposes sales tax on the service of installing tangible personal property, with an exception for installation in connection with the original construction of a building or facility.
• K.A.R. 92-19-66b — makes each contractor, subcontractor, and repairman responsible for collecting and remitting sales tax on taxable services, and bars them from issuing or accepting resale exemption certificates for services bought from or sold to another contractor, subcontractor, or repairman.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1999-10

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

March 12, 1999

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

Dear XXXXXXXXXXX:

I have been asked to respond to your letter of February 25, 1999. In it, you ask about the sales and use tax responsibilities of your company. Your letter states that you are a distributor of graphic arts supplies and equipment and a supplier of service (installation and repairs) to the graphic arts industry. You have a nationwide network of service people and are registered in the various states as a retailer and wholesaler of supplies and service. You have a California customer who purchases service from you for resale to his customers in Kansas. Specifically, the charges are for installation of equipment completed by your service person at a third party’s location. The installation charge is separately stated on the invoice (to the reseller), the installed property remains tangible personal property, and there is not a separate contract between the buyer and seller covering installation.

You asked the Department to inform you as to whether or not installation of tangible personal property is subject to Kansas retailers’ sales tax, and if the this service is taxable under what circumstances can you invoice the reseller free of tax?

Kansas law imposes sales tax on “the gross receipts received for the service of installing. . . tangible personal property which when installed or applied is not being held for sale in the regular course of business, and whether or not such tangible personal property when installed or applied remains tangible personal property or becomes a part of real estate, except that no tax shall be imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building or facility. . .” K.S.A. 79-3603(p). The term “original construction of a building or facility” means the first or initial construction of a new building or facility. The term "original construction" shall include the addition of an entire room or floor to any existing building or facility, the completion of any unfinished portion of any existing building or facility and the restoration, reconstruction or replacement of a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion or earthquake, but such term, except with regard to a residence, shall not include replacement, remodeling, restoration, renovation or reconstruction under any other circumstances. . .” 79-3603(p)(1).

Kansas Administrative Regulation 92-19-66b states, “Labor services. (a) Each contractor, subcontractor, and repairman shall be responsible for collecting and remitting sales tax on taxable services performed for others, including taxable services performed for other contractors. A contractor, subcontractor, or repairman shall not issue or accept a resale exemption certificate that claims an exemption from sales tax for services being purchased from or sold to another contractor, subcontractor, or repairman.”

It is the opinion of the Kansas Department of Revenue that tax is imposed on the service of installing tangible personal property. The tax must be imposed, collected and remitted by the person performing the service. Another retailer may purchase this service under a resale exemption certificate. Other exemptions or exceptions may cause the tax not be collected. For instance: if the service is performed in the original construction of a building or facility; or if performed pursuant to a enterprise zone project exemption certificate. There may be other occasions that the sale is exempt. I have answered to the specifics of your inquiry.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 03/29/1999 Date Modified: 10/10/2001

Table 1

Table 2