Is leasing hard-drive space on a computer system to store voice and fax messages subject to Kansas sales tax?

Plain-English summary

A business asked whether its service of leasing computer-system space is subject to Kansas sales tax. It "leases space on your computer system to other individuals and businesses," most commonly so customers can "store a message that may be listened to by people calling the number" the business provides them. Customers decide how to use the space, subject to a limit "based on the amount of time that is spent accessing it," and "[m]ost people use the space to store information or messages in either fax or voice form." The provider does not "change or act upon or interact with caller[s]" accessing the space, and interacts with customers only when they "request a change in how their leased space is configured." The business clarified that "space" means "space on your hard drive not physical space in [the] business location."

The ruling. "It is the opinion of the Kansas Department of Revenue that the gross receipts from the service you described would not be subject to Kansas retailers' sales tax."

Bottom line: leasing hard-drive space so customers can store voice or fax messages that callers can retrieve is a non-taxable service in Kansas, and the provider's gross receipts from it are not subject to sales tax. The Department reached the same conclusion on materially identical facts in a later ruling, P-1998-101.

What this means for you

Leasing hard-drive space is a non-taxable service

The Department treated the arrangement as a service, not a taxable lease of tangible personal property or an enumerated taxable service. The receipts from providing customers space on the provider's hard drive are not subject to Kansas sales tax.

"Space" means storage capacity, not real estate

The ruling specifically notes that the "space" is capacity on the provider's hard drive — not physical space at the business location. This is a data-storage/messaging service, and it was not taxed.

Provider control over the system supports service treatment

The provider houses and controls the computer system; customers only access their allotted storage and ask for configuration changes. The customer is buying a service, not renting equipment it operates.

Non-taxable output, taxable inputs

As with other non-taxable services, the provider does not charge customers sales tax, but it generally remains the consumer of the computer equipment and property it buys to provide the service and pays tax on those purchases.

Common questions

Is leasing computer/hard-drive space taxable in Kansas?
No. The Department ruled that the gross receipts from this computer-system storage service are not subject to Kansas retailers' sales tax.

Does it matter that customers store voice and fax messages?
No. Customers used the space to store information or messages in voice or fax form, and the service was still not taxable.

Is this a lease of physical space?
No. The "space" is capacity on the provider's hard drive, not physical space at the business location.

Is there a related ruling?
Yes. P-1998-101 reached the same result on materially identical facts.

Citations and references

• The ruling treats leasing hard-drive storage space (used to store voice/fax messages) as a non-taxable service and does not cite a numbered statute.
• 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.
• A materially identical later ruling, P-1998-101, reached the same conclusion.
• Issued June 3, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-50

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 3, 1998

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Dear XXXXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated April 21, 1998.

You generally stated in your letter:

Your business leases space on your computer system to other individuals and businesses. These individuals and businesses use this space for a variety of purposes. The most common is to store a message that may be listened to by people calling the number, you provided them, to access leased space on your system. How your customers use this space is up to them, we limit the use based on the amount of time that is spent accessing it. Most people use the space to store information or messages in either fax or voice form. You do not change or act upon or interact with caller that are accessing their space. The only time you interact with the customer is when they request a change in how their leased space is configured. You want to clarify that when you refer to space you are referring to space on your hard drive not physical space in our business location.

It is the opinion of the Kansas Department of Revenue that the gross receipts from the service you described would not be subject to Kansas retailers’ sales tax.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 06/02/1998 Date Modified: 10/10/2001

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