Is the labor of cleaning above-ground storage tanks and processing the removed sludge subject to Kansas sales tax?

Plain-English summary

A company that cleans above-ground storage tanks asked whether its labor is subject to Kansas sales tax. Its service is "the removal of sludge, the cleaning of the storage tank, the processing of the sludge and disposal of solid waste."

The service tax at issue. K.S.A. 79-3603(q) imposes sales tax "for the service of repairing, servicing, altering or maintaining tangible personal property," and expressly "applicable to the services of repairing, servicing, altering or maintaining an item of tangible personal property which has been and is fastened to, connected with or built into real property." A storage tank could be exactly that kind of built-in property — so the question was whether tank cleaning counts as taxable "servicing" or "maintaining."

Why cleaning is not "maintaining." The Department relied on In Re Tax Appeal of R & R Janitor Service, 9 Kan. App. 2d 500, 505 (1984), which holds that "'Maintaining' is keeping in repair or replacing, and is not synonymous with 'cleaning.'" The court explained that "to maintain" means "to keep in repair or replace," and that ordinary cleaning "do[es] not constitute 'servicing or maintaining an item of tangible personal property which has been fastened to, connected with our [sic] built into real property' within the meaning of that statute."

The holding. Applying that distinction, the Department was "of the opinion that the gross receipts from following labor services are exempt from Kansas retailers' sales tax: removal of sludge from a storage tank, the cleaning of the storage tank, the processing of the sludge and the disposal of solid waste."

Bottom line: cleaning a storage tank (and handling the resulting waste) is cleaning, not the taxable repairing/servicing/maintaining of tangible personal property, so the labor is exempt from Kansas sales tax.

What this means for you

Industrial and tank-cleaning contractors

Charges for cleaning tanks and removing/processing/disposing of the resulting sludge and waste are not taxable "servicing or maintaining" of tangible personal property under Kansas law. The Kansas courts draw a line between cleaning (untaxed) and keeping-in-repair-or-replacing (taxed).

Watch the line between cleaning and repair

If a job goes beyond cleaning into repairing, altering, or replacing parts of the tank or its components, that repair labor can become taxable under K.S.A. 79-3603(q). Separately state cleaning from any repair work so the taxable and nontaxable portions are clear.

The provider still pays tax on its own supplies

As with other nontaxable services, a cleaning contractor is generally the consumer of the chemicals, equipment, and taxable supplies it buys in Kansas to perform the work, and owes sales or use tax on those purchases even though it does not tax the customer.

Common questions

Q: Is tank-cleaning labor taxable in Kansas?
A: No. The Department ruled the gross receipts from "removal of sludge from a storage tank, the cleaning of the storage tank, the processing of the sludge and the disposal of solid waste" are "exempt from Kansas retailers' sales tax."

Q: Why isn't cleaning taxed like repair work?
A: Because Kansas courts hold that "'Maintaining' is keeping in repair or replacing, and is not synonymous with 'cleaning'" (In Re Tax Appeal of R & R Janitor Service). K.S.A. 79-3603(q) taxes repairing, servicing, altering, or maintaining — not cleaning.

Q: Could any part of a tank job still be taxable?
A: Yes. If the work includes repairing, altering, or replacing parts of the tank rather than just cleaning it, that labor can fall within K.S.A. 79-3603(q) and be taxable.

Citations and references

• K.S.A. 79-3603(q) — imposes Kansas sales tax on the service of repairing, servicing, altering, or maintaining tangible personal property, including property fastened to, connected with, or built into real property; the tax the Department found does not reach mere cleaning.
• In Re Tax Appeal of R & R Janitor Service, 9 Kan. App. 2d 500, 505 (1984) — holds that "maintaining" means keeping in repair or replacing and "is not synonymous with 'cleaning,'" the authority the Department applied to exempt the tank-cleaning labor.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-204

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 20, 1999

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
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Dear XXXXXXXXXX:

I have been asked to respond to your letter dated July 14, 1999. In it, you ask for guidance pertaining to Kansas retailers' sales tax on the service of cleaning above ground storage tanks and the processing of related waste into its component parts.

You enclosed a description of your service. Your service is the removal of sludge, the cleaning of the storage tank, the processing of the sludge and disposal of solid waste.

K.S.A. 79-3603(q) imposes a sales tax on, “the gross receipts received for the service of repairing, servicing, altering or maintaining tangible personal property. . . which when such services are rendered is not being held for sale in the regular course of business, and whether or not any tangible personal property is transferred in connection therewith. The tax imposed by this subsection shall be applicable to the services of repairing, servicing, altering or maintaining an item of tangible personal property which has been and is fastened to, connected with or built into real property”

In Re Tax Appeal of R & R Janitor Service, 9 Kan. App. 2d 500, 505 (1984) (“Maintaining” is keeping in repair or replacing, and is not synonymous with "cleaning").

The Court stated in part:

“R & R Janitor Service performed various cleaning services such as vacuuming, dusting, cleaning bathrooms, washing windows, and emptying trash. We find that a requirement in an ordinance of a duty ‘to maintain’ does not impose a duty of keeping siphons clean, since ‘to maintain’ is to ‘keep in repair or replace.’ Janitor work is not maintenance under a statute designating a fund for ‘purchasing, constructing, repairing and maintaining buildings for public school purposes; maintenance meaning holding, keeping or preserving them in their existing state or condition.’ The Nevada court held provisions in a contract for ‘repair and maintenance’ did not require parties to keep alleys clean, but did require keeping the alley's surfaces in their original condition.
Cleaning services do not constitute ‘servicing or maintaining an item of tangible personal property which has been fastened to, connected with our built into real property’ within the meaning of that statute.”

It is the opinion of the Kansas Department Revenue that the gross receipts from following labor services are exempt from Kansas retailers’ sales tax: removal of sludge from a storage tank, the cleaning of the storage tank, the processing of the sludge and the disposal of solid waste.

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

Date Composed: 09/28/1999 Date Modified: 10/11/2001

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