Can an out-of-state contractor use a resale exemption certificate to buy materials tax-free in Kansas?

Plain-English summary

The Department addressed whether an out-of-state contractor may buy materials in Kansas using a resale exemption certificate.

Contractors are taxed on their materials. "K.S.A. 79-3603(l) imposes a sales tax upon: 'the gross receipts received from the sales of tangible personal property to all contractors, subcontractors or repairmen of materials and supplies for use by them in erecting structures for others, or … improving, altering, or repairing real or personal property of others. . .'"

No resale certificate for a contractor's materials. "Each contractor, subcontractor or repairman shall not give, and each retailer shall not accept, a resale exemption certificate to purchase material without sales tax." So "bulk purchases of all material by persons who are contractors only, and all material removed from inventory by a contractor/retailer to perform a construction project shall be subject to sales tax at the time of purchase or at the time the material is removed from inventory, even though the material may be used in a construction project outside of Kansas."

The one exception. "[O]ut-of-state contractors may not give a resale exemption certificate to purchase carpet without the appropriate Kansas sales tax(es). However, an out-of-state contractor/retailer who maintains an inventory of materials to use in providing contracting services and to sell over-the-counter may purchase materials exempt from Kansas sales tax(es), by providing a properly completed resale exemption certificate from their home state."

Bottom line: a pure contractor — even one from out of state — is the consumer of its materials and pays Kansas tax on them; only a contractor that is also a retailer selling from inventory over-the-counter can buy on resale with a home-state certificate.

What this means for you

Contractors consume their materials

Under K.S.A. 79-3603(l), materials sold to contractors, subcontractors, and repairmen for their work are taxable to them. A contractor cannot issue a resale certificate to avoid the tax.

Out-of-state status does not help a pure contractor

An out-of-state contractor is treated the same way — it may not use a resale exemption certificate to buy materials like carpet without Kansas tax.

The tax attaches at purchase or at withdrawal from inventory

The taxing event is the purchase of the material, or the removal of material from inventory by a contractor/retailer to perform a project — even if the material is ultimately used on a project outside Kansas.

The contractor/retailer exception

An out-of-state contractor/retailer that keeps an inventory both to use in contracting and to sell over-the-counter may buy materials exempt for resale, using a properly completed resale exemption certificate from its home state.

Common questions

Can an out-of-state contractor buy carpet tax-free in Kansas for resale?
No. As a contractor, it may not give a resale exemption certificate; the materials are taxable.

Why are the materials taxable?
Because K.S.A. 79-3603(l) taxes sales of materials and supplies to contractors, who are the final users of them.

Does it matter that the project is outside Kansas?
No. The tax attaches at purchase or removal from inventory even if the material is used on an out-of-state project.

Is there any way to buy the materials exempt?
Yes, if the buyer is an out-of-state contractor/retailer that maintains inventory to both use in contracting and sell over-the-counter — it may use a home-state resale exemption certificate.

Citations and references

• K.S.A. 79-3603(l) — imposes sales tax on sales of tangible personal property (materials and supplies) to contractors, subcontractors, and repairmen for use in building on or improving real or personal property of others.
• The ruling states in prose that a contractor may not give, and a retailer may not accept, a resale exemption certificate for such materials; the exception is an out-of-state contractor/retailer selling from inventory over-the-counter, which may use a home-state resale exemption certificate.
• 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 2, 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-1998-57

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 2, 1998

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Dear Ms. TTTTTT:

We wish to acknowledge receipt of your letter which was received by this office on April 20, 1998, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3603(l) imposes a sales tax upon: “the gross receipts received from the sales of tangible personal property to all contractors, subcontractors or repairmen of materials and supplies for use by them in erecting structures for others, or building on, or otherwise improving, altering, or repairing real or personal property of others. . .”

Each contractor, subcontractor or repairman shall not give, and each retailer shall not accept, a resale exemption certificate to purchase material without sales tax. Therefore, bulk purchases of all material by persons who are contractors only, and all material removed from inventory by a contractor/retailer to perform a construction project shall be subject to sales tax at the time of purchase or at the time the material is removed from inventory, even though the material may be used in a construction project outside of Kansas.

In closing, out-of-state contractors may not give a resale exemption certificate to purchase carpet without the appropriate Kansas sales tax(es). However, an out-of-state contractor/retailer who maintains an inventory of materials to use in providing contracting services and to sell over-the-counter may purchase materials exempt from Kansas sales tax(es), by providing a properly completed resale exemption certificate from their home state.

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: 07/01/1998 Date Modified: 10/10/2001

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