Are receipts from coin-operated air compressors at convenience stores subject to Kansas sales tax, and how is the tax computed?

Plain-English summary

A representative whose client was considering installing coin-operated air compressors at Kansas convenience stores asked whether the money collected is taxable. The Department ruled the receipts are taxable — state and local — and explained how to compute the tax. This is a follow-up to the Department's earlier letter (O-2000-033) on the same question; it adds the tire-servicing analysis and two more statute citations.

The tax. "The imposition is found at K.S.A. 79-3603(f)," which taxes "the gross receipts from the operation of any coin-operated device dispensing or providing tangible personal property, amusement or other services except laundry services, whether automatic or manually operated."

Two ways it is taxable. "The device in question dispenses compressed air. This may be viewed as the sale of tangible personal property or the sale of a taxable service. The service that a customer buys is normally one to maintain and service the tires on their vehicle." So "the receipts from the machine are subject to both state and local sales tax under K.S.A. 79-3603(f), K.S.A. 79-3603(q), and K.S.A. 79-3602(e)." The Department noted "Kansas law differs from Missouri law where you indicate the courts held that fees from compressed air machines were not payments for the sale of tangible personal property."

Backing the tax out. Because the coins in the machine already include the tax, "you must factor the tax from the tax included receipts.... This is done by dividing the receipts in the machine by one plus the state and local tax rate stated as a decimal. The result is the amount to report to Kansas as gross receipt (the tax base)."

What this means for you

Vending and coin-operated machine operators

Money collected from a coin-operated air compressor is taxable in Kansas, both because it dispenses tangible personal property (compressed air) and because it performs a taxable tire-servicing function. Collect and remit state and local sales tax on those receipts.

The coins already include the tax — factor it out

Since customers pay tax-included amounts into the machine, divide the total collected by (1 + the combined state-and-local rate expressed as a decimal) to get your reportable gross receipts; the difference is the tax.

Local rate follows the machine's location

Local sales tax is imposed based on where the machine sits, so use the combined state-and-local rate for that location. (The Department cited a 4.9% state rate in 2000; confirm the current rate.)

Common questions

Q: Are coin-operated air compressor receipts taxable in Kansas?
A: Yes. The Department ruled they are subject to state and local sales tax under K.S.A. 79-3603(f), 79-3603(q), and 79-3602(e).

Q: Why cite both a goods and a services provision?
A: The Department said the machine may be seen as selling tangible personal property (compressed air) or providing a taxable service (servicing tires) — either way the receipts are taxable.

Q: How do I compute the tax when the machine only takes coins?
A: Divide the total collected by one plus the combined state-and-local rate (as a decimal) to get the tax base; the remainder is the tax due.

Citations and references

• K.S.A. 79-3603(f) — imposes Kansas sales tax on the gross receipts from any coin-operated device dispensing or providing tangible personal property, amusement, or other services (except laundry). The Department applied it to the air compressor's receipts.
• K.S.A. 79-3603(q) — taxes services of repairing, servicing, altering, or maintaining tangible personal property; the Department invoked it because using the compressor services the customer's tires.
• K.S.A. 79-3602(e) — a definitional provision the Department cited in support of taxing the machine's receipts.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2000-034

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

November 7, 2000

XXXX
XXXX
XXXX

RE: Your letter of October 18, 2000

Dear XXXX:

This is a follow up letter to the one that I sent to you late last month. You have a client who is contemplating installing coin-operated air compressors at convenience stores in Kansas. You ask if the money collected in these machines is subject to Kansas sales tax. The answer is yes. The receipts are taxable. The imposition is found at K.S.A. 79-3603(f). It taxes:

the gross receipts from the operation of any coin-operated device dispensing or providing tangible personal property, amusement or other services except laundry services, whether automatic or manually operated;

The device in question dispenses compressed air. This may be viewed as the sale of tangible personal property or the sale of a taxable service. The service that a customer buys is normally one to maintain and service the tires on their vehicle. Accordingly, the receipts from the machine are subject to both state and local sales tax under K.S.A. 79-3603(f), K.S.A. 79-3603(q), and K.S.A. 79-3602(e). The Kansas state rate is 4.9%. Local sales tax is imposed based on the location of the machine. The Kansas imposition applies because a service is being performed or tangible personal property is being provided. Kansas law differs from Missouri law where you indicate the courts held that fees from compressed air machines were not payments for the sale of tangible personal property.

To determine the tax to report to the State of Kansas, you must factor the tax from the tax included receipts that are in the machine. This is done by dividing the receipts in the machine by one plus the state and local tax rate stated as a decimal. The result is the amount to report to Kansas as gross receipt (the tax base). The tax due is figured by subtracting this amount from the receipts in the machine or by multiplying this amount by the tax rate in effect.

I hope that this adequately answers your questions. If not, please call me at (785) 296-3081.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 11/13/2000 Date Modified: 10/10/2001

Table 1

Table 2