When a retailer/contractor pulls resale-inventory materials to do a construction job, is Kansas sales tax due even if the job is out of state?

Plain-English summary

This ruling addresses a business that is both a retailer and a contractor. Kansas regulation K.A.R. 92-19-66(c) says that a retailer whose principal line of business is selling tangible personal property to final users may buy materials exempt from sales tax for resale. But when that retailer takes on a construction project as a contractor and removes material from inventory to perform the project, the retailer must report and pay the proper sales tax on the cost of the material on its sales tax return.

The Department ruled that materials removed from inventory by such a retailer to perform a construction project are subject to sales tax at the time the materials are removed from inventory — even if the materials will be used in a construction project outside Kansas. It added that when the retailer/contractor removes material from inventory as a sale in interstate commerce, Kansas sales tax still applies, even though the material may be used out of state.

What this means for you

If you run a store that buys inventory tax-free for resale but also does construction/installation work, watch the moment you pull materials from that inventory for your own jobs.

• Buying for resale is fine. You may purchase inventory exempt from tax when your principal business is retail selling.
• Pulling stock for a job triggers tax. When you remove materials from inventory to perform a construction project as a contractor, you owe Kansas sales tax on the cost of those materials.
• Timing: tax is due when the materials are removed from inventory, reported on your sales tax return.
• Out-of-state jobs don't avoid it. The Department said Kansas tax still applies even if the materials end up used in a project outside Kansas — and even when the withdrawal is characterized as a sale in interstate commerce.

Common questions

Can a retailer buy materials tax-free and then use them on its own construction jobs?
It can buy inventory tax-free for resale, but once it removes materials from inventory for its own construction project, it must pay Kansas sales tax on the cost of those materials.

When is the tax due?
At the time the materials are removed from inventory, reported on the retailer's sales tax return.

What if the construction project is in another state?
The Department ruled Kansas sales tax still applies to the materials removed from inventory, even if they are used in a project outside Kansas.

What is the tax based on?
The cost of the material to the retailer/contractor.

Citations and references

• K.A.R. 92-19-66(c) — a retailer whose principal business is retail selling may buy materials exempt for resale, but must report and pay sales tax on the cost of materials removed from inventory to perform a construction project as a contractor.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-33.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

March 25, 1998

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Dear Mr. XXXX:

We wish to acknowledge receipts of your letter dated March 19, 1998, regarding the application of Kansas Retailers’ Sales tax.

K.A.R. 92-19-66(c) states in part: “Each retailer whose principal line of business is the retail selling of tangible personal property to the final user or consumer, but who also performs contractor services, may purchase material exempt from sales tax for resale purposes. When the retailer engages in a construction project as a contractor and removes material from inventory to perform the project, the retailer shall report and pay the proper sales tax on the cost of the material on the retailer’s sales tax return.”

In closing, materials removed from inventory by a retailer to perform a construction project shall be subject to sales tax at the time the materials are removed from inventory, even though the materials may be used in a construction project outside the state of Kansas. Further, when a retailer, who is also a contractor removes material from inventory as a sale in interstate commerce, the Kansas sales tax would apply, even though the material may be used in a construction project outside the state of Kansas.

If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 04/08/1998 Date Modified: 10/10/2001

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