How did Kansas tax uniform and linen rentals, restroom-supply services, laundry inputs, delivery charges, and equipment purchases?

Plain-English summary

A nationwide company rented and sold uniforms, mats, mops, towels, restroom products, and related items and provided laundering and restroom-maintenance services. The Department separated the taxable customer charges from the purchases the company could make exempt.

Each rental billing was a taxable recurring sale. The company had to collect tax on the full charge for uniforms, garments, mats, mops, towels, cabinets, dispensers, and other rental property. Delivery and shipping followed the underlying transaction: taxable when the rental or sale was taxable and nontaxable when the transaction was exempt. Retail sales of uniforms and other merchandise were taxable.

The company could buy property held for rental — including uniforms, mats, mops, and towels — under a resale exemption. The same treatment covered component parts such as emblems, zippers, buttons, patches, hangers, and garment bags given with the rental property. Third-party seamstress repair services and parts for rental uniforms could also be bought for resale with the proper certificate.

Soap, bleach, and other chemicals used to launder rental property were exempt, as were water, gas, and electricity used to operate washers, dryers, mangles, and other cleaning and pressing equipment. Wastewater-treatment chemicals were exempt, but wastewater-treatment equipment was taxable.

The laundry machinery itself — including washers, dryers, water heaters, and water softeners — remained taxable, as did repair parts and services for that equipment and small supplies used to service uniforms. Office equipment and supplies, invoices, delivery vehicles, building materials, and repairs to buildings, vehicles, and business equipment were taxable because the company used them in its own operations.

Restroom cabinets and dispensers, their periodic filling, and the soap, lotion, and towels supplied to customers were fully taxable. If the company taxed the full customer price, it could buy those items for resale. Fuel for delivery vehicles bore motor-fuel tax; when that tax was paid, the letter said Kansas did not add sales tax to the fuel sale.

What this means for you

Uniform and linen rental companies

Collect tax on the entire recurring rental charge, including delivery. Use resale certificates for rental inventory and qualifying components, not for equipment or supplies used in your own business.

Commercial laundries tied to rentals

Cleaning chemicals and utilities directly consumed in laundering rental property received different treatment from the taxable machines, repair services, and repair supplies.

Restroom-service providers

Tax the full customer charge for rented cabinets or dispensers and periodic supply or maintenance service; then claim resale treatment for the items included in that taxable charge.

Common questions

Q: Are uniform and mat rentals taxable?
A: Yes. Each billing was a taxable recurring sale.

Q: Are delivery charges taxable?
A: They follow the underlying sale or rental and are taxable when it is taxable.

Q: May the company buy rental uniforms tax-free?
A: Yes, with a resale exemption certificate, because the uniforms are held for taxable rental.

Q: Are laundry chemicals and utilities exempt?
A: Yes when used to clean and press rental property under the arrangement described.

Q: Is laundry equipment exempt too?
A: No. The machines, indirect equipment, repair parts, and repair services were taxable.

Citations and references

• Publication KS-1520 — resale and utility exemption certificates identified by the Department
• Forms ST-28B and ST-28C — utility exemption forms identified in the letter

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2004-007

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

November 3, 2004

XXXX
XXXX
XXXX

RE: Your e-mail received October 1, 2004

Dear XXXX:

I have been asked to answer your recent e-mail. You work for XXXX, a nationwide company that rents and sells products at retail and provides a variety of services. These activities include uniform sales and rentals, sales of restrooms and hygiene products, rentals of mats, mops, and towels, document shredding and storage, clean room supplies and services, and flame resistant clothing, among other things.

Your letter asks how three of XXXX's business endeavors should be taxed. One is uniform rentals and sales. XXXX launders or dry cleans the uniforms as part of its rental service. The second is sales of restroom supplies and the providing of restroom maintenance services. The third is sales and rental of mops, mats, and towels. As with its uniform rentals, XXXX launders or dry cleans the mops, mats, and towels as part of its rental service. Your letter also asks whether XXXX is should pay tax on its purchases of office equipment, office supplies, maintenance equipment, delivery vehicles, building repairs, building repair materials, utility purchases, laundry supplies, and so forth.

To answer your questions, I will explain how Kansas sales tax applies to the various purchases and services and then address the particular issues that you raise.

Generally, Kansas sales tax law treats all businesses like XXXX as the user or consumer of office equipment, office supplies, billing invoices, delivery vehicles, and building materials that it buys for use in its business operates. These things are fully taxable at the time of purchase. Unlike some states, Kansas taxes repair services done to tangible personal property or to real property that was once tangible personal property. This means that repairs to a building are taxable, since a building is constructed of bricks, windows, doors, flooring, roofing, and other items that were once tangible personal property. Similarly, repairs to motor vehicles, office equipment, and other items of tangible personal property are fully taxable.

Under Kansas law, rental services are subject to sales tax. Each billing for rental property is treated as a recurring sale that is fully taxable. This means that XXXX is required to collect tax on the full amount that it charges to customers for the rental of uniforms, garments, mats, mops, towels, and other items. The tax base for taxable Kansas sales and rental includes delivery and shipping charges. Because delivery and shipping charges are part of the tax base, these charges are taxed when the sale itself is taxed and not taxed if the sale is exempt for some reason. As with its rentals, XXXX is required to charge sales tax on its retail sales of uniforms and other merchandise.

Kansas law extends a number of exemptions to rental businesses. Under Kansas law, XXXX may claim an exemption when it buys uniforms, garments, mats, mops, towels, and the other items that it will rent. XXXX may claim exemption when it buys things that become part of a uniform such as emblems, zippers, buttons, and patches. These things are considered to be component parts of the uniforms or other items being rented. Under the law, the component part exemption extends to things like clothes hangers and plastic garment bags that are given to the customer when the rental merchandise is delivered. If XXXX sends rental uniform out to a third-party seamstress for repair, XXXX may claim a resale exemption on the purchases of the services and repair parts from the seamstress.

To claim the exemption, XXXX is required to provide its vendors with a completed copy of a resale exemption certificate. Sales tax exemption certificates are published in Publication KS-1520, which may be downloaded from our web site at www.ksrevenue.org. You may obtain a copy of the publication by calling our forms request line at 1-785-296-4937. While XXXX may claim exemption when it buys merchandise to rent, it must pay tax when it buys uniforms and other items to use in its own business operations.

Rental agreements for uniforms, linens, and mats commonly provide that the customer will receive clean rental items periodically. When a rental company enters into this type of contract, the rental company may claim exemption on its purchases of soap, bleach, and other chemicals that are used to launder and clean the rental property. The law treats the laundry supplies as being consumed by the rental company in its taxable rental service.

Just as laundry supplies are exempt, so are purchases of water, gas, and electricity used to operate washing machines, dryers, mangles, and other equipment used to clean and press the rental items. Exemption on these utilities should be claimed by using an ST-28B or an ST-28C. These exemption forms are published in Publication KS-1520. Because of a specific provision in Kansas law, wastewater treatment chemicals are exempt, while wastewater treatment equipment is taxable.

While XXXX can claim exemption when it buys utilities to operate its washing machines, dryers, mangles, and other equipment that is used to clean and press items held for rental, XXXX cannot claim exemption when it buys the equipment or repair services or parts for the equipment. Exemption may not be claimed because XXXX is engaging in business as a retailer, and is using the equipment to launder the property that it rents. Tax applies to purchases of water heaters, water softeners, and other equipment that are used indirectly in the laundry operations as well as purchases of washers and dryers that are used directly in the laundry operations. XXXX is also required to pay sales or use tax on its purchases of small items such as emblem removers, marking pens, needles, bags, and other items that are used to repair or service the uniforms.

XXXX rents storage cabinets and dispensers for soap, lotion and towels. XXXX also contracts to fills the dispenser periodically. These things are fully taxable, whether they are viewed as rentals or as maintaining the dispensers. If you are collecting sales tax on the full sales price that you charge on these transaction, you can claim resale exemption when you buy the dispensers, cabinets, soap, lotions, and towels.

You also ask about fuel sold for use in your delivery vehicles. These sales are subject to motor fuel tax, which is often paid at the pump. When motor fuel tax is paid on fuel, Kansas does not impose addition sales tax on the fuel sales.

I believe that I have answered all of your questions. If you need to discuss this matter further, please call me at 1-785-296-4008.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 11/05/2004 Date Modified: 11/05/2004

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