Are utilities at a home used for a business taxed as residential or commercial in Kansas?

Plain-English summary

Someone operating a business from home asked how Kansas sales tax applies to the utilities.

The starting rule. The Department explained that "Kansas law imposes state and local retailers' sales tax on the sale of gas, water, electricity and heat to commercial consumers," while "[t]he law also contains a myriad of exemptions from sales tax based on uses of utilities." Home businesses "present a problematic area."

De minimis business use = residential treatment. "In instances that the business use of the residence is de minimis or insubstantial the utility use should be taxed as being wholly residential." The Department described de minimis use as "merely maintaining a home office for business activity such as accounting of receipts and expenses, receipt of mail, retention of records, receipt of telephone and fax communications, etc."

A walk-in-public area = commercial user. "A person that has designated or segregated an area of their residence that is open to the walk-in public to conduct business is deemed to be [a] commercial user[] of utilities." Because "[t]ypically ... the utility is supplied by a single meter," "[a] determination must be made as to the commercial versus residential use." The utility provider "must charge their utility customers the applicable state and local sales tax unless the customer's exempt use has been documented," and "[t]o obtain an exemption, the customer must complete the utility exemption form BT/[ST]-28B and file it with the utility provider."

Bottom line: a home office used only incidentally keeps the utilities in the residential category, but carving out a space open to the public for business makes the customer a commercial utility user; on a shared meter the split must be determined, and any exempt (residential) use has to be documented on form BT/ST-28B.

What this means for you

The line is de minimis vs. public-facing business use

A home office used for paperwork, mail, records, and calls is de minimis, so the utilities are treated as wholly residential. Opening a segregated area to the walk-in public crosses into commercial utility use.

Single meters require an allocation

Most homes have one utility meter. When business use is more than de minimis, the customer and provider must determine the commercial versus residential share rather than assume the whole bill is one or the other.

The provider charges tax unless exempt use is documented

The utility company must charge state and local sales tax on commercial use unless the customer has documented exempt use. Documentation is the customer's responsibility.

Use form BT/ST-28B to claim exempt use

A customer claiming exempt (residential) utility use completes exemption form BT/ST-28B and files it with the utility provider.

Common questions

Q: If I just have a home office, are my utilities taxed as commercial?
A: No. Where business use is de minimis — a home office for bookkeeping, mail, records, and phone/fax — the utility use is taxed as wholly residential.

Q: What makes me a commercial utility user?
A: Designating or segregating an area of your home that is open to the walk-in public to conduct business.

Q: My home is on one meter — how is the tax figured?
A: A determination must be made of the commercial versus residential use; the provider charges tax unless exempt use is documented.

Q: How do I document exempt use?
A: Complete the utility exemption form BT/ST-28B and file it with your utility provider.

Citations and references

• Kansas sales tax on utilities to commercial consumers — Kansas imposes state and local sales tax on gas, water, electricity, and heat sold to commercial consumers, with use-based exemptions; residential use is treated differently from commercial use. The ruling described these rules without citing a specific statutory subsection.
• Utility exemption certificate (form BT/ST-28B) — the form a customer files with the utility provider to document exempt utility use.
• K.A.R. 92-19-59 — the regulation authorizing private letter rulings; this ruling was issued under it and binds the Department only as to the requesting taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-188

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 20, 1998

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Dear XXXXXXX:

The purpose of this letter is to respond to your letter dated November 4, 1998.

Persons operating a home business present a problematic area in the taxation of utility services. Kansas law imposes state and local retailers’ sales tax on the sale of gas, water, electricity and heat to commercial consumers. The law also contains a myriad of exemptions from sales tax based on uses of utilities.

Many persons operate a business from their residence. In instances that the business use of the residence is de minimis or insubstantial the utility use should be taxed as being wholly residential. De minimis or insubstantial business use of a residence would be merely maintaining a home office for business activity such as accounting of receipts and expenses, receipt of mail, retention of records, receipt of telephone and fax communications, etc.

A person that has designated or segregated an area of their residence that is open to the walk-in public to conduct business is deemed to be commercial users of utilities. Typically, in this situation the utility is supplied by a single meter. A determination must be made as to the commercial versus residential use. The political subdivision furnishing utility service must charge their utility customers the applicable state and local sales tax unless the customer's exempt use has been documented. To obtain an exemption, the customer must complete the utility exemption form BT/st-28B and file it with the utility provider

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.

I have enclosed a copy of the exemption form and instructions. You may duplicate and use as needed.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

encl.

Date Composed: 11/17/1998 Date Modified: 10/10/2001

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