Is a separately labeled 'surcharge' for water delivery subject to Kansas sales tax, or does calling it a surcharge keep it out of the tax base?

Plain-English summary

A business that bills a "surcharge" for water delivery asked whether the surcharge is subject to Kansas sales tax. The Department said yes — the label does not matter; the surcharge is part of the taxable selling price.

It's a transportation charge, and those are in the tax base. "[T]he surcharge is subject to Kansas sales or use tax. This is shown by K.S.A. 79-3602(g), which provides: 'Selling price' means the total cost to the consumer exclusive of discounts allowed and credited, but including freight and transportation charges from retailer to consumer." A delivery surcharge is a transportation charge from retailer to consumer, so it is part of the selling price the tax is measured on.

The name "surcharge" doesn't change the tax. "The fact that you call the delivery charge a surcharge does not affect the imposition of tax on the charge." Kansas taxes the substance of the charge, not its label.

No deductions — separately billed or not. The Department quoted K.A.R. 92-19-46, which defines selling price to include "the total cost to the consumer without any deduction or exclusion for the cost of the property or service sold, labor or service used or expended, materials used, losses, overhead or any other costs or expenses, or profit, regardless of how any contract, invoice or other evidence of the transaction is stated or computed, and whether separately billed or segregated on the same bill." So splitting the delivery charge onto its own line does not exempt it.

Bottom line: "the tax base . . . should include the sum of the surcharge and the line item amount that you charge for water." A delivery surcharge rides with the sale and is taxed.

What this means for you

Businesses that add delivery surcharges

A surcharge for delivering the product to the customer is part of your taxable selling price. Include it in the amount you tax along with the price of the goods. Renaming it a "surcharge," "fuel surcharge," or "delivery fee," or putting it on a separate line, does not make it exempt.

The no-deduction rule is broad

K.A.R. 92-19-46 blocks carving out delivery, labor, overhead, materials, or other costs from the tax base, whether or not they are separately stated. When you build your invoice, assume those components stay inside the taxable amount unless a specific exemption says otherwise.

Substance over label

Kansas looks at what the charge is for, not what you call it. A transportation-type charge from the seller to the buyer is taxable as part of the selling price regardless of its name.

Common questions

Q: Is a water-delivery surcharge taxable in Kansas?
A: Yes. The Department ruled it is part of the taxable selling price under K.S.A. 79-3602(g), which includes freight and transportation charges from retailer to consumer.

Q: Does calling it a "surcharge" or listing it separately avoid the tax?
A: No. The Department said the label does not affect taxability, and K.A.R. 92-19-46 disallows deducting the charge whether or not it is separately billed.

Q: What goes in the tax base?
A: The sum of the delivery surcharge and the line-item charge for the water — and any other charges would likewise be governed by the same regulation.

Citations and references

• K.S.A. 79-3602(g) — defines "selling price" to include freight and transportation charges from retailer to consumer; the basis for taxing the delivery surcharge.
• K.A.R. 92-19-46 — defines selling price as the total consideration with no deduction or exclusion for the cost of property or service, labor, materials, losses, overhead, other costs, or profit, whether separately billed or segregated on the same bill.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2000-021

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 8, 2000

XXXXX
XXXXX
XXXXX

RE: Your e-mail of April 20, 2000

Dear Mr. XXXX:

I have been asked to answer your e-mail that we received last month. In it, you ask if a surcharge for water delivery is subject to Kansas sales tax. Please be advised that the surcharge is subject to Kansas sales or use tax. This is shown by K.S.A. 79-3602(g), which provides:

"Selling price" means the total cost to the consumer exclusive of discounts allowed and credited, but including freight and transportation charges from retailer to consumer. (emphasis provided)

The fact that you call the delivery charge a surcharge does not affect the imposition of tax on the charge. Kansas Administrative Regulation 92-19-46 provides in relevant part:

Selling price is the total consideration given in each transaction, whether in the form of money, rights, property, promise or anything of value, or by exchange or barter. . . . The term selling price includes the following:

(2) the total cost to the consumer without any deduction or exclusion for the cost of the property or service sold, labor or service used or expended, materials used, losses, overhead or any other costs or expenses, or profit, regardless of how any contract, invoice or other evidence of the transaction is stated or computed, and whether separately billed or segregated on the same bill. . . . (emphasis added).

For these reasons, the tax base, which is the amount that is subject to Kansas tax on your billing, should include the sum of the surcharge and the line item amount that you charge for water. This assumes that these are your only customer charges. If you have other charges, they would be governed by the quoted regulation. I hope that this adequately explains why you should charge tax on these fees. If you have any additional questions, please call me and we can discuss this matter further.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 06/07/2000 Date Modified: 10/11/2001

Table 1

Table 2