Is the sale of a building that sits on leased land and is taxed as real property a taxable sale of tangible personal property, or a non-taxable sale of real property?

Plain-English summary

A firm commissioned to sell a building asked whether that sale is a taxable sale of tangible personal property or a non-taxable sale of real property. The Department ruled it is a sale of real property — not subject to sales tax.

The facts. The client owns the building, but the land under it belongs to an unrelated third party who leases the land to the client. The building is permanently affixed to the real property. The question was how to characterize the sale of the building.

The Department's answer. "The building has been classified and taxed as real property as evidenced by documents from the . . . County Appraiser. It is the opinion of the Kansas Department of Revenue that the building in question is real property. Therefore, the sale of said building would not constitute the sale of tangible personal property and is not subject to sales tax." The split ownership of the building and the land did not change the result — what mattered was that the permanently affixed building was itself real property, as confirmed by its real-property classification and taxation on the county appraisal records.

Bottom line: a permanently affixed building that is classified and taxed as real property is real property, and its sale is outside the Kansas sales tax, which reaches sales of tangible personal property.

What this means for you

Buyers and sellers of buildings and permanent structures

The sale of a building that is permanently affixed to land and carried as real property is a real-estate transaction, not a taxable sale of goods. Kansas sales tax does not apply to it. This holds even when the building and the land beneath it have different owners.

Look to the real-property classification

The Department leaned on the county appraiser's classification and taxation of the building as real property. When an item is genuinely part of the realty — permanently affixed and assessed as real property — its transfer is not a sale of tangible personal property.

The line matters for severable items

This treatment reflects the general Kansas rule: sales tax reaches tangible personal property, not real property. Items that are severed from the realty and sold as goods can be a different story, so the classification of what is actually being sold is the key question.

Common questions

Q: Is the sale of a building subject to Kansas sales tax?
A: Not when the building is real property. The Department ruled that a permanently affixed building classified and taxed as real property is real property, so its sale is not a taxable sale of tangible personal property.

Q: Does it matter that the land is owned by someone else?
A: No. The building sat on leased land owned by a third party, and the Department still treated the building as real property whose sale is not subject to sales tax.

Q: What made it "real property"?
A: It was permanently affixed to the land and was classified and taxed as real property by the county appraiser — the facts the Department relied on to reach its conclusion.

Citations and references

• The Department resolved this ruling on the real-property versus tangible-personal-property distinction rather than by citing a specific K.S.A. section: a permanently affixed building classified and taxed as real property by the county appraiser is real property, so its sale is not a sale of tangible personal property and is outside the Kansas sales tax. (The ruling was issued as a private letter ruling under K.A.R. 92-19-59.)

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2000-037

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 27, 2000

XXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXX

Dear XXXXXXXXXX:

I have been asked to respond to your letter of July 26, 2000.

Your firm has been commissioned to sell a building. Your client owns the building. The real property that the building is located upon is owned by an unrelated third party. The third party leases to your client the real property upon which said building is located. The building is permanently affixed to the real property. You ask if the sale of the building constitutes for purposes of Kansas retailers’ sales tax a sale of tangible personal property or the sale of real property.

The building has been classified and taxed as real property as evidenced by documents from the XXXXXXXX County Appraiser. It is the opinion of the Kansas Department of Revenue that the building in question is real property. Therefore, the sale of said building would not constitute the sale of tangible personal property and is not subject to sales tax.

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,

Mark D. Ciardullo
Tax Specialist

Date Composed: 07/31/2000 Date Modified: 10/11/2001

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