Can a Kansas retailer close its sales tax registration once its supplier collects and remits the tax?

Plain-English summary

A retailer that buys food supplements for resale from a multi-level marketing (MLM) company asked whether it was "appropriate to 'close out' [its] Kansas retailers' sales tax registration."

The facts. The taxpayer "purchase[s] for resale and sell[s] at retail food supplements" and was "registered to collect and remit Kansas retailers' sales tax." The MLM company it buys from "has agreed with the Kansas Department of Revenue to register, collect and remit sales tax on shipments to Kansas members." Starting June 1, 1999, that supplier began collecting sales tax on the taxpayer's purchases of food supplements "that you intent [intend] to resell or consume."

The holding. "Based on the information in your letter it is the opinion of the Kansas Department of Revenue that it is appropriate for you to discontinue your sales tax registration." The Department enclosed a Notice of Discontinuation of Business form.

Why. In a typical MLM arrangement, the sales tax is collected upstream — the marketing company collects and remits the Kansas tax on shipments to its Kansas members. Once the tax is being collected and remitted at that level, the individual member/distributor no longer needs to hold its own sales tax registration.

Bottom line: when a supplier has agreed with the Department to collect and remit the Kansas sales tax on shipments to its Kansas members, the member may close out its own Kansas retailers' sales tax registration.

What this means for you

Multi-level marketing distributors

If the marketing company you buy from collects and remits Kansas sales tax on its shipments to you, you generally do not need to keep your own sales tax registration open. Confirm the supplier is in fact registered and collecting the Kansas tax before you close yours.

File the discontinuation form

Closing a registration is a formal step. The Department provides a Notice of Discontinuation of Business for this purpose — file it rather than simply stopping filings, so your account is properly closed.

Make sure the tax is actually being collected upstream

The result here turns on the supplier's agreement with the Department to collect and remit the tax. If your supplier is not collecting Kansas tax, closing your registration could leave the sales untaxed and you exposed — keep your registration until you have confirmed the upstream collection.

Common questions

Q: Can I close my Kansas sales tax registration if my supplier collects the tax?
A: On these facts, yes. Because the marketing company "agreed with the Kansas Department of Revenue to register, collect and remit sales tax on shipments to Kansas members," the Department said it was "appropriate for you to discontinue your sales tax registration."

Q: How do I close the registration?
A: The Department enclosed a "Notice of Discontinuation of Business" form for that purpose.

Q: Does this apply to any retailer who wants to stop collecting tax?
A: No. The ruling rests on the specific fact that the supplier had agreed to collect and remit the Kansas tax on shipments to its Kansas members. A retailer whose sales are not otherwise being taxed cannot simply close its registration to avoid collecting.

Citations and references

• K.A.R. 92-19-59 — the regulation under which this private letter ruling was issued; it binds the Department only as to the requesting retailer and stated facts.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-173

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

August 9, 1999

XXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXX

Dear XXXXXXXXX:

I have been asked to respond to your letter dated July 14, 1999. In it, you ask if it is appropriate to “close out” your Kansas retailers’ sales tax registration.

In your letter you stated that you purchase for resale and sell at retail food supplements. You are registered to collect and remit Kansas retailers’ sales tax. The multi-level marketing company from which you purchase the food supplements has agreed with the Kansas Department of Revenue to register, collect and remit sales tax on shipments to Kansas members. Starting June 1, 1999 the food supplement supplier shall begin to collect sales tax on your purchases of food supplements that you intent to resell or consume.

Based on the information in your letter it is the opinion of the Kansas Department of Revenue that it is appropriate for you to discontinue your sales tax registration. I have enclosed a form for that purpose.

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.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC: mdc

Enclosure: Notice of Discontinuation of Business

Date Composed: 08/09/1999 Date Modified: 10/11/2001

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