Did an out-of-state contractor have to register a Kansas contract and post a tax bond under K.S.A. 79-1009 if it was authorized to do business in Kansas?

Plain-English summary

An out-of-state contractor requested a private letter ruling about Kansas's nonresident-contractor registration and bond statutes. The Department declined to issue a PLR because the question did not concern a retailer's sales-tax collection duty, but it still explained the statutory rule in an Opinion Letter.

Under the 2010 text quoted in the letter, K.S.A. 79-1009 generally required a nonresident contractor to register with the Secretary of Revenue for each Kansas contract whose total price or compensation exceeded $10,000. The registration supported a bond intended to protect Kansas and its political subdivisions against unpaid taxes and employment-security contributions.

The statute expressly excepted “a foreign corporation authorized to do business in this state.” The Department read that language to mean an out-of-state contractor that registered its business with the Kansas Secretary of State did not also have to register the contract with Revenue or post the otherwise required bond.

What this means for you

Out-of-state contractors

Under this 2010 interpretation, Kansas Secretary of State authorization for a foreign corporation triggered the statutory exception from the separate nonresident-contract registration and bond requirement. Confirm the current statutes before planning compliance.

Project owners and tax teams

Do not assume every nonresident contractor followed the same route. The rule distinguished contractors authorized to do business in Kansas from other nonresident contractors with contracts above the quoted threshold.

Businesses seeking PLRs

The Department said private letter rulings were intended to protect retailers following written advice about sales-tax collection duties. It used an Opinion Letter, not a PLR, for the contractor-bond question.

Common questions

Q: What was the general registration threshold in the letter?
A: A nonresident contractor contract totaling more than $10,000 under the 2010 text of K.S.A. 79-1009.

Q: Who qualified for the exception?
A: A foreign corporation authorized to do business in Kansas.

Q: What did the exception avoid?
A: Separate registration of the contract with the Secretary of Revenue and the bond that otherwise would have been required.

Q: Did the Department issue a private letter ruling?
A: No. It declined the PLR request and provided this general Opinion Letter instead.

Citations and references

• K.S.A. 79-1009 — nonresident-contractor registration rule and foreign-corporation exception quoted in the letter
• K.S.A. 79-1010 — companion contractor-bond statute identified in the request

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2010-004

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

June 15, 2010

XXXX
XXXX
XXXX

RE: Your letter dated May 12, 2010

Dear XXXX:

Thank you for your recent letter. You ask for a private letter ruling concerning K.S.A. 79-1009 and K.S.A 79-1010. These statutes establish bond requirements for out-of-state contractors. I decline to issue a private letter ruling on this type of subject matter.

Private letter rulings provide retailers with the means to determine whether or not they are required to collect sales tax on a particular retail transaction. If the department advises a retailer in a written private letter ruling that it are not obligated to collect sales tax, the retailer can rely on the advice. If it is later determined that the department's advice is incorrect, the department cannot recover the uncollected sales tax from the retailer.

Limiting private letter rulings to retailer's tax collection duties is appropriate because the Kansas judiciary is the final arbiter of what the Kansas sales tax act says. An administrator cannot deem whether a taxpayer owes sales tax, income tax, or any other kind of Kansas tax. Kansas statutes and case law determine whether or not the tax is owed. Similarly, an administrator cannot limit how the Kansas judiciary construes tax laws, whether the administrator construed the law for one taxpayer or millions of taxpayers. A rule that allows administrators to be the final arbiter of whether or not tax is owed would lead to payoffs and widespread corruption.

A private letter ruling can prevent the department from pursuing a retailer for sales tax it does not collect from a customer. This is appropriate since the retailer is acting as a tax collector for the State of Kansas and is following the department's written advice. If the advice in the private letter ruling is incorrect, the department can pursue the consumer for the full amount of the unpaid sales tax despite the department's incorrect interpretation of the law in the private letter ruling.

K.S.A 79-1009 provides:

Collection of taxes from non-resident contractors; registration for certain contracts. To the end that the state of Kansas and the political subdivisions thereof may receive all taxes due in every instance, including contributions due under the employment security law, contractors, who are nonresidents of this state, desiring to engage in, prosecute, follow or carry on the business of contracting as defined in this act shall register with the secretary of revenue or the secretary's designee for each contract where the total contract price or compensation to be received amounts to more than $10,000, except that a foreign corporation authorized to do business in this state shall not be required to register under the provisions of this act. (Underlining added).

The underlined exception means that an out-of-state contractor that registers to do business with the Secretary of State is not required to register the contract with the Secretary of Revenue or to post the bond that would otherwise be required. These bonds were originally required under K.S.A. 79-1009 because of losses the State of Kansas and its political subdivisions incurred dealing with out-of-state contractors. Before the exception underlined in K.S.A. 79-1009 was enacted, Kansas and its political subdivision recovered millions of dollars in claims made under the bonds that otherwise would have been lost.

The exception underlined in K.S.A. 79-1009 effectively does away with the protection that out-of-state contractor bonds afford the State of Kansas and its political subdivisions. It allows out-of-state contractors to avoid buying a bond by registering its business with the Kansas Secretary of State, which costs far less than posting a surety bond with the department.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 06/16/2010 Date Modified: 06/16/2010

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