Are the gross receipts from selling market research reports and consulting - delivered in binders with diskettes and maps - subject to Kansas sales tax?

Plain-English summary

A business asked whether the gross receipts from its information service are subject to Kansas retailers' sales tax. It sells market research reports - "printed information in 3-ring binders with computer diskettes and maps, plus consulting time" - to banks, builders, developers, and a local Home Builders Association. As a licensee of an out-of-state company, it gathers data locally, sends it to a computer center for processing, and has finished reports shipped to clients. It even framed the legal question itself: "Is the 'object of the sale' the binder or the information and consulting? I believe it is the latter." The Department agreed the service is not taxable.

Kansas taxes goods and only listed services. The ruling repeats the standard framework: "sales tax is imposed on all transactions involving the transfer of tangible personal property," but "[w]ith services, however, tax is imposed only on those transactions that are specifically enumerated in the sales tax act."

The true object is the information, not the binder. Although the reports are delivered on tangible items (binders, diskettes, maps), the Department concluded that "no imposition exists in the law to impose Kansas sales tax on the services as described in this letter." In other words, this is a nontaxable information/consulting service, and the tangible carriers do not turn it into a taxable sale of goods.

The business is the final consumer of its inputs. As always, the company "is required to pay Kansas sales and compensating taxes on all purchases of tangible personal property and taxable services used or consumed by their business" - including what it pays the computer center for processing, copying, binders, and postage.

Bottom line: selling market research reports and consulting is a nontaxable information service in Kansas, even when delivered in binders with diskettes and maps; the provider pays sales or use tax on its own purchases.

What this means for you

Sellers of research, reports, or analysis

When the real value you sell is information and expertise - and any binder, disk, or printout is just the delivery vehicle - Kansas generally treats the transaction as a nontaxable service, not a taxable sale of goods. Confirm your specific service is not one of the enumerated taxable services.

The "object of the sale" question

Where a deliverable mixes information with tangible items, the key question is what the customer is really buying. Here the object was the market research and consulting, so the incidental binder and diskette did not make the sale taxable.

You still owe tax on your inputs

A nontaxable service provider is the final consumer of what it buys. You must pay Kansas sales or compensating (use) tax on the processing, printing, binders, postage, and other tangible personal property and taxable services you purchase to produce the reports.

Common questions

Q: Is selling market research reports taxable in Kansas?
A: No. The Department found no statutory imposition reaching this information service, so the receipts are not subject to Kansas sales tax.

Q: Does delivering the report in a binder with a diskette make it taxable?
A: No. The true object of the sale is the information and consulting; the tangible carriers do not convert it into a taxable sale of goods.

Q: Does the business owe any Kansas tax?
A: Yes - it must pay Kansas sales or compensating (use) tax on the processing, copying, binders, postage, and other tangible personal property and taxable services it buys.

Citations and references

• The Department cited no specific statutory section. Its conclusion rests on the framework that Kansas sales tax reaches all transfers of tangible personal property but reaches services only when specifically enumerated, and that "no imposition exists in the law" for the market-research information service described. A nontaxable service provider must still pay Kansas sales and compensating tax on its own purchases of tangible personal property and taxable services.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-047

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 24, 2001

XXXXXXXXXXXX
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Dear XXXXXXXXXX:

The purpose of this letter is to respond to your letter dated April 23, 2001. In it, you ask if the gross receipts from a information service are subject to Kansas retailers’ sales tax.

In deciding whether a particular transaction is subject to sales tax, a two step analysis is generally necessary. The first step is to determine whether the sales tax act generally imposes tax on the type of transaction in question. The second step is to determine whether the act provides an exemption for the particular type of transaction.

As a rule, sales tax is imposed on all transactions involving the transfer of tangible personal property. With services, however, tax is imposed only on those transactions that are specifically enumerated in the sales tax act. Exemptions for transactions involving either tangible personal property or services are allowed as specifically enumerated.

In your letter you stated:

I recently attended a class sponsored by the Small Business Development Center at Johnson County Community College. Mr. Ron Grant of the Division of Tax Operations presented information on withholding and sales tax, filing requirements, and preparing forms. Based on questions that arose during the class, I am requesting a Private Letter Ruling regarding Kansas Sales Tax. The following is a brief description of our business situation.

We sell market. research reports (printed information in 3-ring binders with computer diskettes and maps, plus consulting time) to banks, builders, developers and the local Home Builders Association.

We are a licensee of a company located in XXXX. All primary and secondary data is gathered locally and shipped to a computer center in XXXXX. Information is processed and reports are shipped directly from XXXX to our clients.

We pay the computer center approximately $XXX per report for processing, copying, binders, postage, etc. We then charge our customers $XXX for the market research information and personal consulting time.

Should our reports, diskettes and consulting be subject to sales tax? Is the “object of the sale” the binder or the information and consulting? I believe it is the latter. Please respond with your ruling as soon as possible. Thank you.

It is the opinion of the Department that no imposition exists in the law to impose Kansas sales tax on the services as described in this letter.

Your Company is required to pay Kansas sales and compensating taxes on all purchases of tangible personal property and taxable services used or consumed by their business.

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

Date Composed: 05/22/2001 Date Modified: 10/11/2001

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