Does an out-of-state company that sells customizable web-center subscriptions to Kansas customers, with no property or employees in Kansas, have to file Kansas income tax or collect Kansas sales tax?

Plain-English summary

An Arizona company that sells customizable "web center" subscriptions to customers, including in Kansas, asked whether it owes Kansas income tax or must collect Kansas sales tax. It had no property, inventory, or employees in Kansas. The Department ruled that, on these facts, it has neither obligation — because it lacks nexus with Kansas.

The business. For an annual fee, a member gets a customizable web center: templates to build a site, links to third-party affiliate programs, web-based personal-information tools (calendar, address book, schedule), web-based email, and the like. Orders are taken at the Arizona location, and the technical work happens out of state. The company "does not have [any] property or employees in" Kansas.

Kansas income tax — no filing required. Because "the company does not own or rent any real or personal property that is located in Kansas [and] does not have or maintain any inventory or employees in Kansas," the Department concluded "the company is not required to file Kansas income tax returns."

Kansas sales tax — no collection duty without nexus. The Department explained the constitutional foundation: "Nexus requirements spring from constitutional due process considerations that mandate that a state must have certain minimal contacts with an out-of-state business before it can impose tax or tax collections duties on that business." If the company had owned or leased Kansas property, nexus would exist and it would have to collect Kansas sales or use tax. But "absent: (1) the presence of such owned or leased property in Kansas; (2) sending employees or agents into Kansas; or (3) other acts that would constitute nexus, your company would not be required to collect Kansas tax."

Bottom line: with no Kansas property, inventory, employees, or agents, this out-of-state web-service seller had no Kansas nexus, so it owed no Kansas income-tax filing and no duty to collect Kansas sales/use tax — a conclusion that would change if it later established any of the listed connections to the state.

What this means for you

Out-of-state sellers of online services and subscriptions

If your only connection to Kansas is customers here — no owned or leased property, no inventory, and no employees or agents in the state — the Department treated you as lacking the nexus needed to require a Kansas income-tax return or Kansas sales-tax collection. Nexus, not the location of your customers, drives the obligation.

Watch the nexus triggers

The ruling lists the connections that create nexus: owning or leasing Kansas property, sending employees or agents into Kansas, or other nexus-creating acts. If your activities cross any of those lines, the answer flips and Kansas tax duties attach.

This ruling predates today's remote-seller rules

This is a 2000 ruling grounded in the then-governing physical-presence/due-process nexus framework. Kansas's rules for remote sellers and marketplace facilitators have since expanded, so a modern analysis of the same facts may differ — check current law before relying on the no-collection result.

Common questions

Q: Does having Kansas customers alone create a Kansas tax obligation?
A: Not under this ruling. With no property, inventory, employees, or agents in Kansas, the out-of-state company lacked nexus and owed neither a Kansas income-tax filing nor a duty to collect Kansas sales/use tax.

Q: What would create nexus?
A: Owning or leasing property in Kansas, sending employees or agents into Kansas, or other nexus-creating acts. Any of those would require the company to collect Kansas tax.

Q: Can I rely on this for my remote business today?
A: Be careful. This is a 2000 ruling under the older nexus standard; Kansas has since adopted broader remote-seller and marketplace rules, so confirm current law before applying it.

Citations and references

• The Department decided this ruling on constitutional nexus / due-process minimum-contacts principles rather than by citing a specific K.S.A. section. With no owned or leased Kansas property, inventory, employees, or agents, the out-of-state company lacked nexus, so it was not required to file Kansas income tax returns or to collect Kansas sales or use tax — a result the ruling said would change if the company established property, sent employees or agents into Kansas, or committed other nexus-creating acts.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2000-030

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 19, 2000

XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX

Dear XXXXXXXXXXXXXXXX:

I have been asked to respond to your letter dated April 19, 2000. In it, you request a private letter ruling to verify your Kansas tax obligations.

In your letter you stated:

XXXXXX is located in Arizona. The Arizona location will take orders for the product. Technical services in the creation and support of the product will occur at an out of state location. XXXXXXXX does not have [any] property or employees in your state.

The primary product sold by the company consists of the establishment of web centers. For an annual fee, a member will have access to certain features provided to customize the web center. Features on the web center, include templates that simplify the process of establishing the site, links to third party affiliate programs, web-based personal information management tools (i.e. calendar, address book, schedule, etc.), web-based email, etc.

Kansas income tax:

You indicated that the company does not own or rent any real or personal property that is located in Kansas. The company does not have or maintain any inventory or employees in Kansas.

Based on the facts of this letter, it is the opinion of the Kansas Department of Revenue that the company is not required to file Kansas income tax returns.

Kansas retailers’ sales tax:

Nexus requirements spring from constitutional due process considerations that mandate that a state must have certain minimal contacts with an out-of-state business before it can impose tax or tax collections duties on that business. As noted above, if your company has property in Kansas that it owns or leases, the nexus requirements are met and your company would be required to collect Kansas sales or use tax on its taxable sales. However, absent: (1) the presence of such owned or leased property in Kansas; (2) sending employees or agents into Kansas; or (3) other acts that would constitute nexus, your company would not be required to collect Kansas 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.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 06/20/2000 Date Modified: 10/10/2001

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