On an exempt project, are repairs to a contractor's own equipment tax-exempt like repairs to equipment it rents for that job?

Plain-English summary

A contractor working on projects covered by tax exemption (project exemption) certificates asked a natural question: if it rents equipment for an exempt job and the rental (and repairs to it) are exempt, then when its own equipment breaks down on that same exempt job, aren't those repairs exempt too? The Department said no — and explained the difference between renting and owning.

Rented equipment for an exempt job — exempt, repairs included. "Your understanding that a piece of equipment rented specifically for an exempt job is exempt from sales tax is correct. You are also correct that the parts for repairs made to a rented machine and paid for by the machine's owner are exempt." Kansas taxes all rentals of tangible personal property (K.S.A. 79-3603(h)), and by regulation a contractor's leases of tools and equipment for construction are taxable — except a lease under a project exemption certificate (K.A.R. 92-19-66c). Because the rental is job-specific, "repairs made to that equipment are also job specific," so if the rental is exempt, the repairs are exempt.

The contractor's own equipment — taxable, even on the exempt job. Kansas also taxes all sales of tangible personal property (K.S.A. 79-3603(a)), and sales of tools and equipment to contractors, subcontractors, and repairmen for construction are taxable, with "no exemption . . . for the purchase of equipment and machinery by a contractor under a project exemption certificate" (K.A.R. 92-19-66c). The Department's logic: "Since the purchase of equipment by a contractor, subcontractor or repairman is not considered to be job specific, repairs made to that equipment are not considered to be job specific." Because buying your own equipment is never covered by a project exemption certificate, "repairs made to that equipment are subject to Kansas sales tax."

Bottom line: the exemption follows the job-specific rental. A machine you own travels across many jobs, so neither its purchase nor its repairs qualify under a project exemption certificate — repairs stay taxable even when the breakdown occurs on the exempt project.

What this means for you

Contractors and subcontractors on exempt projects

A project exemption certificate covers materials and job-specific rentals, not your own equipment. Repairs and repair parts for equipment you own are taxable, even if the machine broke down while working on the exempt job. Don't extend the project exemption certificate to your own-equipment repairs.

Rentals are the exception — keep them job-specific

Equipment rented specifically for an exempt job (and repairs to it paid by the owner) can be exempt under K.A.R. 92-19-66c. If you want the exemption to reach the repairs, the rental itself has to be the job-specific, exempt rental.

Owned equipment is always your taxable purchase

Because you buy your equipment once and use it across projects, its purchase — and its ongoing repairs — are taxable. Budget for tax on repair parts and repair labor for your own fleet regardless of which project it is serving that day.

Common questions

Q: On an exempt job, are repairs to equipment I rented for that job exempt?
A: Yes. Equipment rented specifically for an exempt job is exempt, and the parts and repairs to that rented machine (paid by the owner) are exempt too, because the rental is job-specific.

Q: What about repairs to my own equipment that breaks down on the exempt job?
A: Those are taxable. Your own equipment is not job-specific and is not covered by a project exemption certificate, so its repairs and repair parts remain subject to Kansas sales tax.

Q: Why the difference?
A: The exemption follows a job-specific rental. Owned equipment moves from project to project, so neither its purchase nor its repairs qualify as job-specific under the project exemption certificate.

Citations and references

• K.S.A. 79-3603(h) — imposes sales tax on the gross receipts from renting or leasing tangible personal property; the basis for taxing contractor equipment rentals absent a project-exemption exception.
• K.S.A. 79-3603(a) — imposes sales tax on the retail sale of tangible personal property; the basis for taxing a contractor's purchase of its own equipment and the repairs to it.
• K.A.R. 92-19-66c — the regulation on contractor tools/equipment: leases for construction are taxable except under a project exemption certificate, but purchases of equipment by a contractor are never exempt under such a certificate; the basis for the rented-versus-owned distinction.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-248

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 8, 1999

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear XXXXX:

Your correspondence of August 13, 1999, has been referred to me for response. By your letter you ask our assistance with a question you have regarding the use of Tax Exemption Certificates on eligible projects you are currently working on. Your letter states, in part:

It is my understanding that if we are renting a piece of equipment specifically for an exempt job, it is exempt from sales tax and so are the parts or repairs made to that same machine, however, if we are using our own piece of equipment on that job and it breaks down, aren’t the repairs necessary to keep it running on that job tax exempt, too? I realize that the same piece of equipment we own will be used farther down the road on different projects, but since the repair was specific to that date and time when the machine was on the same project, wouldn’t that qualify?

Your understanding that a piece of equipment rented specifically for an exempt job is exempt from sales tax is correct. You are also correct that the parts for repairs made to a rented machine and paid for by the machine’s owner are exempt. However, repair parts for and repairs made to your own equipment are subject to sales tax. Let me explain why.

The Kansas sales tax act imposes sales tax on all rentals of tangible personal property. [See K.S.A. 79-3603(h).] Kansas administrative regulations specifically provide that leases of tools, machinery and equipment by a contractor to perform construction services are subject to sales tax. An exception is the lease of equipment and machinery by a contractor under a project exemption certificate. [See K.A.R. 92-19-66c.]

When the rental of equipment is job specific, repairs made to that equipment are also job specific. Therefore, if the rental of the equipment is exempt, repairs made to the equipment are also exempt.

The Kansas sales tax act also imposes sales tax on all sales of tangible personal property. [See K.S.A. 79-3603(a).] Kansas administrative regulations specifically provide that sales of tools, equipment and machinery to contractors, subcontractors and repairmen to perform construction services are subject to sales tax. In the case of sales, there is no exemption from sales tax for the purchase of equipment and machinery by a contractor under a project exemption certificate. [See K.A.R. 92-19-66c.]

Since the purchase of equipment by a contractor, subcontractor or repairman is not considered to be job specific, repairs made to that equipment are not considered to be job specific. Therefore, since the purchase of equipment by a contractor, subcontractor or repairman is not exempt under a project exemption certificate, repairs made to that equipment are subject to Kansas sales tax.

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: K.S.A. 79-3603(a)
K.S.A. 79-3603(h)
K.A.R. 92-19-66c

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

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