Must a group that buys weather-alert radios with grant funds and resells them at cost collect Kansas sales tax?

Plain-English summary

A Kansas community — selected as the first in the state for the Federal Emergency Management Agency's "Project Impact," with a $500,000 grant to make the community more disaster-resistant — used grant funds to buy Emergency Alert Sentinel (weather-alert) radios at a reduced price and resell them "at cost to individual residents and businesses," while selling some "below cost or . . . donat[ing]" them to schools. It asked whether it must collect sales tax on those radio sales.

Who is a "retailer." K.S.A. 79-3602(d) defines a "retailer" as "a person regularly engaged in the business of selling tangible personal property at retail . . . and selling only to the user or consumer and not for resale." K.A.R. 92-19-47 elaborates that "[t]he principal nature of the seller's business operation is immaterial," the controlling factors being whether the sale is to the final user/consumer and whether it is a taxable sale of property or service. And "[a]ny person is deemed to be a retailer if the person sells tangible personal property at retail . . . notwithstanding the fact that the sales may be few or infrequent, or that retail sales may comprise a small portion of the total gross receipts."

The decisive rule. The regulation's emphasized sentence: "If any person acquires tangible personal property for the purpose of resale, the person acquiring the property is deemed to be a retailer and shall collect sales tax on the gross receipts received from the retail sale thereof."

The holding. "[T]he [community] acquired the radios in question for the purpose of resale. As a result, [it] is deemed to be a retailer and is required by law to collect and remit sales tax." The Department enclosed a Kansas Business Tax Application Booklet to help it register.

Bottom line: buying goods to resell makes you a retailer who must collect Kansas sales tax on the resale — even a nonprofit or civic program selling at cost, below cost, or infrequently. (Donations, where there is no sale, are a separate matter.)

What this means for you

Buying to resell makes you a retailer

The test is not whether selling is your main business, whether you make a profit, or how often you sell. If you "acquire tangible personal property for the purpose of resale," you are a retailer and must collect sales tax on the gross receipts from each retail sale.

Selling "at cost" does not avoid the tax

Sales tax applies to the gross receipts you actually receive on the sale. Charging only your cost still produces taxable gross receipts; it does not turn a sale into an exempt transaction.

Register before you sell

Because reselling triggers retailer status, register with the Department (the ruling enclosed the Kansas Business Tax Application Booklet) and set up to collect and remit the tax. Genuine donations, with no sale, are handled differently from sales.

Common questions

Q: We're a civic program selling radios at cost — do we still collect sales tax?
A: Yes. Acquiring the radios "for the purpose of resale" makes the group "a retailer . . . required by law to collect and remit sales tax," even at cost.

Q: Does it matter that reselling is not our main activity?
A: No. "The principal nature of the seller's business operation is immaterial," and retailer status applies even if sales "may be few or infrequent."

Q: What about radios we donate to schools?
A: A donation is not a sale, so it does not generate taxable gross receipts. The tax obligation attaches to the radios the group sells.

Citations and references

• K.S.A. 79-3602(d) — defines "retailer" as a person regularly engaged in selling tangible personal property at retail to the user or consumer and not for resale.
• K.A.R. 92-19-47 — interprets the retailer definition: the seller's principal business is immaterial, retailer status applies even to few/infrequent sales, and anyone who "acquires tangible personal property for the purpose of resale" is a retailer who must collect tax on the resale.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-157

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

July 23, 1999

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear XXXXX,

Your correspondence of July 6, 1999, has been referred to me for response. Thank you for your inquiry.

Your letter indicates XXXXXXXXX has been selected as the first community in Kansas to participate in the Federal Emergency Management Agency’s Project Impact. As part of Project Impact, XXXXXXXXX has received $500,000 in grant funds to be used for the development of public / private partnerships which will undertake activities to create a more disaster resistant community. One of the activities selected by the Steering Committee and Commissions to receive funding from the grant was the promotion of Emergency Alert Sentinel radios for residences, businesses, schools, etc.

XXXXXXXXX purchased the radios with the grant funds at a reduced price through a partnership with the manufacturer. The radios are being sold by XXXXXXXXX at cost to individual residents and businesses to promote their use in the community and to create awareness of Project Impact. The radios are being sold below cost or being donated to schools and similar institutions.

By your letter you ask whether sales tax should be collected on the sale of these weather alert radios by XXXXXXXXX.

Definitions of terms used in the Kansas retailer’s sales tax act are found in K.S.A. 79-3602. Subsection (d) of the statute defines the term “retailer.” The statute provides:

(d) “Retailer” means a person regularly engaged in the business of selling tangible personal property at retail or furnishing electrical energy, gas, water, services or entertainment, and selling only to the user or consumer and not for resale.

The statute is interpreted, in part, by Kansas Administrative Regulation (K.A.R.) 92-19-47. The regulation provides:

92-19-47. “Retailer” (a) “Retailer” means any person regularly engaged in the business of selling tangible personal property at retail to the final user or consumer, and not for resale. The principal nature of the seller’s business operation is immaterial in making the determination of whether a person is a retailer. The controlling factors are:
(1) whether the sale is to the final user or consumer; and
(2) whether the transaction is a sale of tangible personal property or service which is subject to sales tax.
(b) Sales tax is imposed on retail transactions not exempted by law. Any person generally providing a service which is not taxable is deemed to be a retailer when the person engages in the sale of tangible personal property or taxable services at retail to the final user or consumer and which are not for resale purposes.
(c) “Regularly engaged in the business” means the periodic, habitual or recurring sale of tangible personal property at retail or services subject to sales tax. Any person is deemed to be a retailer if the person sells tangible personal property at retail or provides taxable services in the normal course of its business operations, notwithstanding the fact that the sales may be few or infrequent, or that retail sales may comprise a small portion of the total gross receipts. If any person acquires tangible personal property for the purpose of resale, the person acquiring the property is deemed to be a retailer and shall collect sales tax on the gross receipts received from the retail sale thereof. (Emphasis added.)

Based on the information provided in your letter, XXXXXXXXX acquired the radios in question for the purpose of resale. As a result, XXXXXXXXX is deemed to be a retailer and is required by law to collect and remit sales tax. For your convenience, I have enclosed a copy of our Kansas Business Tax Application Booklet which will assist you in registering XXXXXXXX as a retailer.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Enclosure: Kansas Business Tax Application Booklet

Date Composed: 08/03/1999 Date Modified: 10/11/2001

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