Can a contractor give a resale exemption certificate to rent a personnel lift tax-free for a repair job in Kansas?

Plain-English summary

A rental company asked whether a contractor's resale exemption certificate was properly used to rent equipment tax-free. A welding contractor "rented a personnel lift" from the company to perform welding repairs for its customer, and "issued … a resale exemption certificate for the purpose of exempting the rental of the personnel lift from sales tax."

A contractor cannot use a resale certificate for tools or equipment. The Department was clear: "It is not appropriate for a contractor to issue resale exemption certificates for the purchase or lease of tools or equipment."

The governing rule. The Department quoted K.A.R. 92-19-66c, which provides that "[e]ach contractor, subcontractor and repairman shall be considered the final user or consumer of all tools, equipment and machinery purchased to perform construction services," and that "[s]ales of tools, equipment and machinery to contractors, subcontractors and repairmen to perform construction services shall be subject to sales tax." Leases are treated the same way: "[w]ith the exception of leases of equipment and machinery by a contractor under a project exemption certificate, leases of tools, machinery and equipment by a contractor to perform construction services shall be subject to sales tax."

No resale, ingredient, or consumed-in-production theory helps. The regulation adds that such leases are "not exempt from sales tax as an ingredient or component part of the services performed by the contractor," and are "not exempt … as consumed in the production of the service performed by the contractor," whether the underlying services are taxable or exempt.

Bottom line: the contractor is the final consumer of the personnel lift, so the rental is taxable. The rental company should not have accepted the resale exemption certificate; the only way a contractor leases equipment tax-free is under a project exemption certificate.

What this means for you

Contractors are consumers of their tools and equipment

Kansas treats contractors, subcontractors, and repairmen as the final users of the tools, equipment, and machinery they buy or rent to do construction work. That means they pay sales tax on those items — they are not "reselling" them to the customer.

A resale certificate is the wrong document here

A resale exemption certificate is for property a business buys to resell. Tools and equipment a contractor uses to perform a job are not resold, so a resale certificate does not exempt their purchase or lease.

Equipment leases are taxable too — with one exception

Renting a personnel lift, crane, or similar equipment to perform construction services is subject to sales tax. The single exception in the regulation is equipment or machinery leased "under a project exemption certificate."

Rental companies should not accept a contractor's resale certificate for equipment

A company renting equipment to a contractor should charge sales tax on the rental rather than accept a resale exemption certificate, unless a valid project exemption certificate applies.

Common questions

Can a contractor rent equipment tax-free with a resale certificate?
No. The Department ruled it is not appropriate for a contractor to issue a resale exemption certificate to buy or lease tools or equipment; those transactions are taxable.

Why is the contractor taxed on the rented lift?
Under K.A.R. 92-19-66c, the contractor is the final user or consumer of the equipment used to perform construction services, so the lease is subject to sales tax.

Is there any way for a contractor to lease equipment tax-free?
Yes — the regulation's one exception is equipment and machinery leased by a contractor under a project exemption certificate.

Should the rental company have charged tax?
Yes. It should charge sales tax on the personnel lift rental rather than honor the resale exemption certificate.

Citations and references

• K.A.R. 92-19-66c — provides that contractors, subcontractors, and repairmen are the final consumers of tools, equipment, and machinery used to perform construction services, so sales and leases of those items are subject to sales tax (except equipment/machinery leased under a project exemption certificate), and are not exempt as an ingredient/component or as consumed in production. The regulation is authorized by K.S.A. 79-3618 and implements K.S.A. 79-3602 and 79-3603.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued September 11, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-123

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 11, 1998

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Dear XXXXXXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated August 18, 1998.

You stated that a welding contractor rented a personnel lift from your company. The contractor is performing welding repairs for his customer and needed the lift to complete the job. The contractor issued to you a resale exemption certificate for the purpose of exempting the rental of the personnel lift from sales tax. You asked if this would be an appropriate use of a resale exemption certificate.

It is not appropriate for a contractor to issue resale exemption certificates for the purchase or lease of tools or equipment.
K.A.R. 92-19-66c states:

Purchase and lease of tools and equipment. (a) Each contractor, subcontractor and repairman shall be considered the final user or consumer of all tools, equipment and machinery purchased to perform construction services. Sales of tools, equipment and machinery to contractors, subcontractors and repairmen to perform construction services shall be subject to sales tax. With the exception of leases of equipment and machinery by a contractor under a project exemption certificate, leases of tools, machinery and equipment by a contractor to perform construction services shall be subject to sales tax.
(b) Leases of tools, equipment and machinery by a contractor are not exempt from sales tax as an ingredient or component part of the services performed by the contractor, whether the services are taxable or exempt from the sales tax.
(c) Leases of tools, equipment and machinery by a contractor are not exempt from sales tax as consumed in the production of the service performed by the contractor, whether the services are taxable or exempt from the sales tax. (Authorized by K.S.A. 79-3618, implementing K.S.A. 1986 Supp. 79-3602, K.S.A. 1986 Supp. 79-3603 as amended by L. 1987, Ch. 182, Sec. 108; effective May 1, 1988.)

This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further
Department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 09/11/1998 Date Modified: 10/10/2001

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