Are gross receipts from selling internet disk space (server storage) and web-page design subject to Kansas retailers' sales tax?

Plain-English summary

A business preparing to form an LLC described its products as internet services — specifically, reselling disk space and access on a server (located out of state) and designing World Wide Web pages. It compared its work to an advertising agency's: writing in a language computers understand, with the customer never receiving a diskette, CD-ROM, or executable program. The sites are reachable only by a computer connected to the internet. The business asked whether these services are exempt from Kansas sales tax.

The Department ruled that the gross receipts from the sale of disk space — the storage of information via a server — would not be subject to Kansas retailers' sales tax.

What this means for you

If you sell server disk space or online information-storage service to Kansas customers and the customer receives no tangible product (no disk, CD-ROM, or program to keep), the Department treated those receipts as a non-taxable service rather than a sale of tangible personal property.

A few practical points:

• The key fact was that the customer receives nothing tangible — access and storage are delivered only over the internet.
• The ruling directly addresses the sale of disk space (storage of information). Providers offering bundled or different products should not assume every internet-related charge is automatically non-taxable.
• Even when what you sell is a non-taxable service, you generally still owe sales or use tax on the tangible personal property and any taxable services you buy to provide it (for example, hardware). This ruling addresses only the receipts the provider collects from its customers.

Common questions

Is selling server disk space taxable in Kansas?
No. The Department ruled that gross receipts from selling disk space (storage of information via a server) are not subject to Kansas retailers' sales tax.

Why isn't it taxable?
Because the customer receives no tangible personal property — no diskette, CD-ROM, or executable program — and the service is delivered only over the internet.

Does the ruling say web-page design is taxable?
The requester described both disk-space resale and web-page design, but the Department's stated conclusion addresses the sale of disk space (storage of information), which it found not taxable.

Can my internet business rely on this ruling?
Not directly. A private letter ruling binds the Department only for the taxpayer and facts it was issued to. Treat it as guidance and seek your own determination.

Citations and references

• The ruling states the Department's conclusion as a matter of interpretation and does not cite a specific numbered statute for the non-taxable treatment of disk-space sales.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-45.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 8, 1998,

XXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX

Dear Mr. XXXXXXXXX:

The purpose of this letter is to respond to your letter dated April 16, 1998.

You generally stated in your letter:

XXXXXXXXXXXXXXXXXXXXXX is planning to form as a XXXXXXXXXXXXXXXX LLC. Your products are internet services - specifically resale of disk space and access on a server located in XXXXXXX, and design of World Wide Web pages. The product most closely resembles that of an advertising agency. It involves writing in a language understood by computers, the customer does not receive a diskette, CD-ROM or executable program. The sites are accessible only by using a computer connected to the internet. You believe that your services are exempt from sales tax under Kansas Law and requesting a written ruling to verify.

It is the opinion of the Kansas Department of Revenue that the gross receipts from the sale of disk space (storage of information) via a server would not be subject to Kansas retailers’ sales tax.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 05/13/1998 Date Modified: 10/10/2001

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