Are infrared thermographic scanning services and the written reports provided with them subject to Kansas sales tax?

Plain-English summary

A Kentucky company used infrared cameras to identify electrical hot spots, motor-bearing problems, wet roof insulation, hydraulic or boiler issues, poor building insulation, and air leakage. It delivered still or video images in a customer report and asked whether the service was taxable in Kansas.

The Department said the scanning service was not taxable because it was not one of the services enumerated in K.S.A. 79-3603. The written report and its paper were incidental to the service, comparable to paper used by a lawyer for a will or an accountant for an audit report.

Because the company was selling a nontaxable service rather than reports at retail, it had to pay sales tax on its cameras, film, paper, and other supplies. It could not buy those items under a resale exemption.

The letter imposed two important conditions. First, if the company also provided taxable construction, installation, repair, or maintenance services, the entire customer charge — including the scanning — would be taxable under the sales-price rule. Second, because Kansas treated commissioned photographs as retail sales, the provider should always supply a written summary or report explaining how to interpret the infrared images if it wanted to retain nontaxable-service treatment.

What this means for you

Thermography providers

Treat the scanning as a diagnostic service and give the customer a written interpretive report with the images. Pay tax on the equipment and consumable supplies used to provide the service.

Construction and repair companies

Bundling thermography into your own taxable construction, repair, maintenance, or installation work can make the entire charge taxable under this opinion.

Accountants

The customer charge and the provider's input purchases receive different treatment: the service was nontaxable, while the cameras, film, paper, and supplies were taxable to the provider.

Common questions

Q: Is standalone infrared thermographic scanning taxable?
A: No. It was not an enumerated taxable service.

Q: Is the customer report a taxable sale of paper?
A: No. The report was incidental to the scanning service.

Q: May the provider buy cameras and supplies for resale?
A: No. The provider had to pay sales tax on those purchases.

Q: What if the provider also performs the repair or construction work?
A: The letter says the full customer charge, including scanning, becomes taxable.

Q: Why include a written explanation with the infrared images?
A: The Department said commissioned photographs were retail sales, so an interpretive report supported treatment as a diagnostic service rather than a photograph sale.

Citations and references

• K.S.A. 2004 Supp. 79-3603 — enumerated taxable services
• K.S.A. 2004 Supp. 79-3603(p), (q), and (r) — installation, repair, and maintenance services
• K.S.A. 2004 Supp. 79-3602(ll) — sales or selling price

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2005-002

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

August 17, 2005

XXXX
XXXX
XXXX

RE: Your e-mail received August 11, 2005

Dear XXXX:

Thank you for your recent e-mail Your Kentucky company provides infrared thermographic scanning services. These services are used for a variety of things, including: (1) scanning electrical systems for hot spots caused by loose or poor connections, load imbalances, or other problems; (2) checking bearing on motors; (3) detecting wet insulation under flat roofs; (4) checking hydraulic systems and boiler systems; and (5) performing energy audits on buildings to detect poor insulation and air leakage, among other things. A infrared camera captures still or video images, which are incorporated into a report that is given to the customer. You ask if these services are subject to Kansas sales tax. The answer is no. Kansas sales tax does not apply to these services.

The Kansas sales tax act imposes sales tax on sales of tangible personal property, admission and membership charges, and other services that are enumerated or listed in K.S.A. 79-3603. The infrared thermographic scanning services that you provide are not enumerated in the act and, therefore, are not subject to Kansas sales tax. The reports that you provide to customers are an incidental part of the non-taxable infrared scanning service. The paper used to produce the reports is treated the same way as the paper that a lawyer uses to produce a will or an accountant uses to produce an audit report. The sale of the paper is taxable. This means that while you should not collect sales tax on customer charges for your services, you must pay sales tax on everything you buy to provide your service, including cameras, film, paper, and other supplies. You may not claim resale exemption on any of these purchases since Kansas law treats you as providing a non-taxable services rather than selling reports at retail.

There are two caveats to this discussion. The first is that Kansas taxes installation, repair, and maintenance services, whether the services are performed to tangible personal property or to real property that was once tangible personal property. K.S.A. 2004 Supp. 79-3603(p) (q) & (r). If you provide construction services in addition to your infrared scanning services, you would be required to charge and collect sales tax on your entire customer charge, including the infrared thermographic scanning services. See K.S.A. 2004 Supp. 79-3602(ll), definition of "sales or selling price." The second caveat is that the Kansas sales act law treats photographers as making retail sales of the photographs that they are commissioned to take. This means that if you want to retain your non-retail status, you should always provide a written summary or report with your infrared photographs that explains how the photographs should be interpreted.

I hope that I have adequately explained how your business is treated under the Kansas retailers' sales tax act. If you need to discuss this matter further, please call me at 785-296-3081.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 08/18/2005 Date Modified: 08/18/2005

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