Is labor to install or apply property during the original construction of a new building subject to Kansas sales tax?

Plain-English summary

Kansas taxes "the gross receipts for the service of installing or applying tangible personal property" under K.S.A. 79-3603(p) — whether or not the property stays personal property or becomes part of real estate. But the statute carves out one important exception: no tax is imposed on installing or applying property "in connection with the original construction of a building or facility."

The statute defines the key terms:

• "Original construction" means the first or initial construction of a new building or facility. It also includes adding an entire room or floor to an existing building, and completing an unfinished portion of an existing building.
• "Building" means only enclosures within which people customarily live or work, or that are customarily used to house machinery, equipment, or other property — plus the land improvements immediately surrounding the building.

The Department ruled that the services described (erecting a new structure) are not subject to Kansas sales tax, because they are rendered in connection with original construction — the first or initial construction of a new building.

What this means for you

If you perform installation or application labor as part of building something new, that labor is generally not taxed in Kansas.

• New construction labor is exempt. Installing or applying property during the first/initial construction of a new building or facility is not taxed under 79-3603(p).
• Certain additions count too. Adding an entire room or floor, or completing an unfinished portion of an existing building, also qualifies as original construction.
• Repairs and remodeling are different. Installation/application labor that is not part of original construction (for example, ordinary repair or replacement work on an existing, completed building) can be taxable — this exemption is specific to original construction.
• Materials are separate. This exemption is about the labor. The tangible personal property itself is generally still subject to tax under the normal rules.

Common questions

Is construction labor taxable in Kansas?
Installation or application labor performed in connection with the original construction of a new building or facility is not taxable under K.S.A. 79-3603(p).

What counts as "original construction"?
The first or initial construction of a new building or facility, including adding a whole new room or floor or completing an unfinished part of an existing building.

Does this exemption cover repairs to an existing building?
Not necessarily. The exemption is tied to original construction; installation/application labor outside that context can be taxable.

Are the building materials also exempt?
The ruling addresses the installation/application service. The property itself is generally taxable under the ordinary rules.

Citations and references

• K.S.A. 79-3603(p) — imposes tax on the service of installing or applying tangible personal property, but exempts that service when performed in connection with the original construction of a building or facility; also defines "original construction" and "building."

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-36.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

April 15, 1998

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TTTTTTTTTTT
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TTTTTTTTTTT

Dear Mr. TTTTTT:

We wish to acknowledge receipts of your letter dated April 1, 1998, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3603(p) imposes a sales tax upon: “the gross receipts for the service of installing or applying tangible personal property . . . and whether or not such tangible personal property when installed or applied remains tangible personal property or becomes part of real estate, except that no tax shall be imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building or facility . . .
For purposes of this subsection:
(1) “Original construction” shall mean the first or initial construction of a new building or facility. The term “original construction” shall include the addition of an entire room or floor to any existing building or facility, the completion of any unfinished portion of any existing building or facility . . .
(2) “building” shall mean only those enclosures within which individuals customarily live or are employed, or which are customarily used to house machinery, equipment or other property, and the land improvements immediately surrounding such building. . .”

In closing, the services that you have described in the above referenced letter to erect the TTTTTTTTTTT would not be subject to sales tax in the state of Kansas, since said services are rendered in connection with the original construction, which is the first or initial construction, of a new building.

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: 04/27/1998 Date Modified: 10/10/2001

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