Does Kansas give credit for sales tax lawfully paid to another state when purchased property is later first used in Kansas?

Plain-English summary

A correspondent asked whether Kansas allows credit for sales tax paid when property is purchased in another state and later used in Kansas. The Department answered yes for tax lawfully paid to the state of purchase.

K.S.A. 79-3704(c) excludes property from Kansas compensating use tax when its sale or use has already borne a tax equal to or greater than Kansas's tax. When the other state's combined state and local rate is lower, Kansas collects only the difference between that rate and the combined Kansas state and local use-tax rate.

For the Kansas local component, the letter uses the rate at the place where the property is first used in Kansas. If the purchase state's combined rate is equal to or higher than the applicable Kansas combined rate, no Kansas use tax is due.

The letter notes that motor vehicles can be more complicated because states differ in their treatment of leases, retitling, isolated sales, registration, and taxes imposed in place of ordinary sales tax. It does not resolve any particular vehicle transaction.

What this means for you

Businesses moving equipment into Kansas

Keep proof that the other state's tax was lawfully paid, identify where the property was first used in Kansas, and compare the two combined state-and-local rates.

Accountants and bookkeepers

The Kansas amount is not automatically the full use tax. When the other state's rate is lower, compute only the difference described in the letter; when it is equal or higher, the letter says no Kansas use tax is owed.

Vehicle purchasers

Do not assume the simple rate comparison resolves every vehicle purchase. The opinion expressly identifies leases, retitling, isolated sales, registration, and substitute vehicle taxes as complicating factors.

Common questions

Q: Does Kansas credit tax paid to another state?
A: Yes, when the sales tax was lawfully paid to the state of purchase.

Q: What if the Kansas combined rate is higher?
A: Kansas use tax is due on the difference between the applicable combined rates.

Q: Which Kansas local rate applies?
A: The letter uses the local rate where the property is first used in Kansas.

Q: What if the other state's combined rate is equal or higher?
A: No Kansas use tax is owed under the rule described in the opinion.

Citations and references

• K.S.A. 79-3704(c) — property already subjected to an equal or greater sales or use tax
• John F. Due and John L. Mikesell, Sales Taxation: State and Local Structure and Administration, 2nd ed. (1994), p. 248 — quoted by the Department on the history of interstate credits

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2007-004

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

August 9, 2007

XXXX
XXXX
XXXX

RE: Your e-mail received on August 7, 2007

Dear XXXX:

I have been asked to answer your recent e-mail. In it, you ask if a credit is given for sales taxes paid on a purchase made in another state when the item is later used in Kansas. The answer is yes, a credit is given for taxes lawfully paid to the state of purchase. This credit is codified at K.S.A. 79-3704, which provides:

The provisions of this act shall not apply: . . .

(c) In respect to the use, storage or consumption of any article of tangible personal property the sale or use of which has already been subjected to a tax equal to or in excess of that imposed by this act whether under the laws of this state or of some other state of the United States. . . .

Under this provision, Kansas tax is owed on the difference between the combined Kansas state and local use tax rate and the lower combined state and local sales tax rate of the state where the purchase was made. The local tax rate required to be used is the one in place where the first use of the purchase is made in Kansas. If the combined state and local sales tax rate of the state of purchase is higher than the combined Kansas rate, no Kansas use tax is owed.

In the book Sales Taxation-State and Local Structure and Administration, Due and Mikesell 2nd Ed. 1994, the authors discuss the origins of this credit:

Credit for Sales Taxes Paid to Other States

Initially, most states did not give credit for sales tax that had been paid to another state, and therefore, there was potential double taxation. The principal difficulty arose with goods used by a business firm in one state and then transferred to another state. Inevitably, complaints were raised about this treatment, and some states began to provide a credit. The trend increased sharply in the mid-1960s as a result of a report and subsequent federal legislation proposed by a subcommittee of the U.S. House judiciary Committee, discussed latter in this chapter. As a consequence, credit is now given for sales tax paid other states with relatively few exceptions. . . . (p. 248)

Due and Mikesell go on to explain that some states provide a general credit while others provide a reciprocal credit based on whether or not the state of purchase provides a credit similar to the one their state provides. This treatment become much more complicated when applied to motor vehicles, because of the different tax treatment accorded by the states for vehicles sales, such as on leases (e.g. payment up front or on the stream of payments), vehicle re-titling, isolated sales, and vehicle registration. In addition, some states impose a different tax on vehicle sales than their sales tax.

Hopefully, this letter adequately answers your questions about the credit that Kansas extends for taxes lawfully paid in another state. If not, please call me and we can discuss this matter further.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 08/10/2007 Date Modified: 08/10/2007

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