Can a company that buys bulk gas tanks to lease to customers purchase the tanks exempt from Kansas sales tax?

Plain-English summary

A company asked whether it could buy bulk liquefied gas tanks exempt from Kansas sales tax when it purchases them to lease to its customers. The Department answered by explaining what "retail sale" means.

The rule. "[T]he Kansas sales tax is imposed upon retail sales only. Retail sales are sales to final users or consumers."

Applied to the company. "Therefore, since your company is purchasing the bulk liquefied gas tanks for lease to your customers, your company would be permitted to purchase the gas tanks exempt from sales tax."

Bottom line: because the company is not the final user of the tanks — it leases them out to customers — its purchase is not a taxable retail sale. It may buy the tanks exempt (a purchase for resale). The tax instead attaches to the company's lease transactions with its customers, who are the users of the tanks.

What this means for you

Sales tax reaches only retail sales

Kansas sales tax applies to retail sales — sales to the final user or consumer. A purchase that is not to the final user is not a taxable retail sale.

Buying to lease is buying for resale

Because the company purchases the tanks to lease them to customers, it is not the final user. It may purchase the tanks exempt from sales tax, as the leasing arrangement puts the tanks back into commerce rather than consuming them.

The lease to the customer is the taxable transaction

The exemption on the purchase side reflects that the taxable event is the company's lease of the tanks to its customers, who are the users; the company should handle tax on those lease receipts under the ordinary rules.

Document the exempt purchase properly

A buyer purchasing for lease/resale should provide the appropriate resale exemption documentation to its supplier to support the exempt purchase.

Common questions

Can a company buy gas tanks tax-free if it leases them out?
Yes. Because it is not the final user, the purchase is not a taxable retail sale, and the company may buy the tanks exempt.

Why is the purchase exempt?
Kansas sales tax applies only to retail sales — sales to the final user or consumer — and a purchase to lease the tanks to customers is not such a sale.

Who is the final user?
The company's customers who lease and use the tanks, not the company that buys them for lease.

Is the lease to customers taxable?
The ruling addresses the exempt purchase; the taxable event is the company's lease of the tanks to its customers, handled under the ordinary rules for leases.

Citations and references

• The ruling states in prose that Kansas sales tax is imposed on retail sales only — sales to final users or consumers — so a company buying bulk liquefied gas tanks to lease to customers may purchase the tanks exempt from sales tax. No numbered statute is cited.
• 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.
• Issued June 24, 1998 by Thomas P. Browne, Jr., Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-54

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 24, 1998

TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT

Dear Mr. TTTTTTT:

We wish to acknowledge receipt of your letter which was received by this office on June 3, 1998, regarding the application of Kansas Retailers’ Sales tax.

Please be advised that the Kansas sales tax is imposed upon retail sales only. Retail sales are sales to final users or consumers. Therefore, since your company is purchasing the bulk liquefied gas tanks for lease to your customers, your company would be permitted to purchase the gas tanks exempt from sales tax.

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: 06/30/1998 Date Modified: 10/10/2001

Table 1

Table 2