Is a Kansas sale exempt when the buyer's affiliated common carrier picks up the goods and hauls them out of state?

Plain-English summary

A Kansas manufacturer processed orders for common carriers headquartered out of state, and those carriers sent "their own trucks to pickup and deliver the merchandise out of state." The manufacturer sought guidance on this scenario: a member of an "affiliated group" ("Corporation A," not a common carrier) orders property from the Retailer and "directs the retailer to ship the property to a location outside the state of Kansas via Corporation B," which is a common carrier in the same affiliated group.

The rule. "If this transaction meets the conditions of Kansas Administrative Regulation 92-19-29, then the sale would not be subject to Kansas retailers' sales tax." The Department quoted the regulation: "When tangible personal property is sold within the state and the seller is obligated to deliver it to a point outside the state or to deliver it to a carrier or to the mails for transportation to a point without the state, the retail sales tax does not apply: Provided, The property is not returned to a point within this state."

Required proof. The "most acceptable proof of transportation outside the state" is "(a) A waybill or bill of lading made out to the seller's order calling for delivery; or (b) An insurance or registry receipt issued by the United States postal department … ; or (c) A trip sheet signed by the seller's delivery agent and showing the signature and address of the person outside the state who received the delivered goods."

The important limit. "[W]here tangible personal property pursuant to a sale is delivered in this state to the buyer or his agent other than a common carrier, the sales tax applies, notwithstanding that the buyer may subsequently transport the property out of this state."

Bottom line: because delivery is made to a common carrier (Corporation B) for transport out of state, the sale can qualify as an exempt interstate sale under K.A.R. 92-19-29 — so long as the property is not returned to Kansas and the seller keeps the required delivery proof. The exemption would fail if the goods were instead handed over in Kansas to the buyer or a non-common-carrier agent.

What this means for you

Delivery to a common carrier for out-of-state transport can be exempt

When the seller is obligated to deliver the property out of state — including by delivering it to a carrier or the mails — the retail sales tax does not apply, provided the property is not returned to Kansas.

The common-carrier distinction is decisive

Delivery in Kansas to the buyer or to an agent that is not a common carrier is taxable even if the buyer later hauls the goods out of state. Here, Corporation B is a common carrier, so the pickup-and-haul does not defeat the exemption.

Keep the required proof of out-of-state delivery

The exemption depends on documentation: a waybill or bill of lading to the seller's order, a postal insurance/registry receipt, or a trip sheet signed by the seller's delivery agent showing the out-of-state recipient.

Do not let the goods return to Kansas

The regulation conditions the exemption on the property not being returned to a point within Kansas.

Common questions

Is a sale exempt when the buyer's own trucks pick it up and take it out of state?
It can be, if the buyer's carrier is a common carrier and the transaction meets K.A.R. 92-19-29 — including the out-of-state delivery proof and no return to Kansas.

What if the goods are handed to the buyer in Kansas?
Then the sales tax applies, even if the buyer later transports the property out of state — unless the recipient is a common carrier.

What proof does the seller need?
A waybill or bill of lading to the seller's order, a postal insurance/registry receipt, or a trip sheet signed by the seller's delivery agent showing the out-of-state recipient.

Does the affiliated-group relationship matter?
The key is that Corporation B is a common carrier. Delivery to a common carrier for out-of-state transport is what brings the sale within the interstate-commerce exemption.

Citations and references

• K.A.R. 92-19-29 ("Sales in interstate commerce") — when property is sold in-state and the seller is obligated to deliver it out of state, or to a carrier or the mails for out-of-state transport, the retail sales tax does not apply, provided the property is not returned to Kansas; acceptable proof includes a waybill/bill of lading to the seller's order, a postal receipt, or a signed trip sheet. Delivery in-state to the buyer or a non-common-carrier agent is taxable. (The ruling also refers to this provision as "K.S.A. 92-19-29.")
• 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 July 24, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-62

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 24, 1998

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Dear XXXXXXXXXX:

The purpose of this letter is to respond to your letter dated May 14, 1998.

You generally stated in your letter:

XXXXXXXXXXXXXXXXXXXXX. is a manufacturer of XXXXXXXXXXXXXX and is located in XXXXXXXXXXX, Kansas. You receive and process orders for a number of major common carriers whose headquarters are in other states. The orders are received via the mail, phone, fax or EDI(electronic data exchange). The goods are for use by the common carriers at terminal locations throughout the United States. The buyer will specify the orders are to be shipped out of state via deadhead company business on their own trucks. Your bill of lading will specify the out of state destination. Since these companies operate as common carriers with terminal locations in XXXXXXX, Kansas they send their own trucks to pickup and deliver the merchandise out of state. If your customer was anyone other than a common carrier, and the goods were shipped out of state there would not be any question that sales tax does not apply. In addition, it does not make economic sense for your customer to hire another common carrier to avoid the taxability issue of picking up the goods in their own trucks.

In essence you are seeking guidance regarding Kansas retailers’ sales tax in the following scenario:

A member (“Corporation A”) of an “affiliated group” as defined by Internal Revenue Code, orders property from you company (“Retailer”). Corporation A is not a Common Carrier. Another member (“Corporation B”) of the “affiliated group” is a common carrier.

Corporation A, directs the retailer to ship the property to a location outside the state of Kansas via Corporation B. If this transaction meets the conditions of Kansas Administrative Regulation 92-19-29, then the sale would not be subject to Kansas retailers’ sales tax

K.S.A. 92-19-29 states:

Sales in interstate commerce.
When tangible personal property is sold within the
state and the seller is obligated to deliver it to a point
outside the state or to deliver it to a carrier
or to the mails for transportation to a point with-
out the state, the retail sales tax does not apply:
Provided, The property is not returned to a point
within this state. The most acceptable proof of
transportation outside the state will be:
(a) A waybill or bill of lading made out to the
seller's order calling for delivery; or
(b) An insurance or registry receipt issued by
the United States postal department, or a post of-
fice department's receipt; or
(c) A trip sheet signed by the seller's delivery
agent and showing the signature and address of
the person outside the state who received the de-
livered goods.
However, where tangible personal property
pursuant to a sale is delivered in this state to the
buyer or his agent other than a common carrier,
the sales tax applies, notwithstanding that the
buyer may subsequently transport the property
out of this state. (Authorized by K.S.A. 79-3618,
K.S.A. 1971 Supp. 79-3602, 79-3606; effective, E-
70-33, July 1, 1970; effective, E-71-8, Jan. 1, 1971;
effective Jan. 1, 1972.)

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 07/27/1998 Date Modified: 10/10/2001

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