When are a contractor's repairs for a school district exempt from Kansas sales tax, and when is a project exemption certificate required?

Plain-English summary

A taxpayer asked how Kansas sales tax applies to repair projects performed for political subdivisions, using school districts as the example. The Department drew a line between work on real property (needs a project exemption certificate) and repairs to movable items (does not).

The statutory exemption for public projects. Under K.S.A. 79-3606(d), sales of tangible personal property or services purchased by a contractor to construct, equip, reconstruct, maintain, repair, enlarge, furnish, or remodel facilities for a public or private nonprofit hospital, a public or private school or educational institution, or a political subdivision are exempt - if the cost is paid from that entity's funds and the purchase would be exempt if made directly by the entity.

How the project exemption certificate works. The statute requires the political subdivision (or school, hospital, etc.) to "obtain from the state and furnish to the contractor an exemption certificate for the project involved," after which "the contractor may purchase materials for incorporation in such project." The contractor gives that certificate number to its suppliers. The Department explained that "[t]he project exemption certificate provisions provided in K.S.A. 79-3606(d) would apply to purchases of materials, services and supplies which become a physical part of a building erection, repair or enlargement project."

Movable equipment repairs are different - no project certificate needed. The Department's closing point: "when a school district has overhead projectors, fish aquariums, oxygen tanks, mowers, tractors, typewriters and sewing machines repaired, the respective school district would not need to obtain a project exemption, since these items are not attached to real property." Instead, "[t]he school district would simply provide vendor the exemption certificate that is utilized when making direct purchases of tangible personal property or services without tax."

Bottom line: for building projects that become part of real property, the district must issue a project exemption certificate to the contractor; for repairs to movable equipment not attached to real property, the district just uses its ordinary direct-purchase exemption certificate.

What this means for you

Contractors doing public building work

When you construct, repair, remodel, or enlarge a building for a school district or other political subdivision, get the project exemption certificate the entity obtains from the State before buying materials. Give the certificate number to your suppliers so the material purchases are exempt.

Schools and political subdivisions

For a building project, you must request a project exemption certificate from the State and furnish it to the contractor. For repairs to movable items (projectors, mowers, tractors, typewriters, and the like) that are not attached to real property, you do not need a project certificate - use your regular direct-purchase exemption certificate.

The dividing line is "attached to real property"

Whether a project certificate is needed turns on whether the materials become a physical part of a building (real property) or the work is simply repairing tangible personal property. Classify the job that way first.

Common questions

Q: When does a school district need a project exemption certificate?
A: For projects to construct, repair, enlarge, or remodel a building - work whose materials, services, and supplies become a physical part of the real property.

Q: Does repairing a school's mowers, typewriters, or oxygen tanks need a project certificate?
A: No. Those items are not attached to real property, so no project exemption is required; the district uses its ordinary exemption certificate for direct purchases.

Q: Who obtains the project exemption certificate?
A: The political subdivision (or school/hospital) obtains it from the State and furnishes it to the contractor, who then gives the number to its suppliers.

Citations and references

• K.S.A. 79-3606(d) - exempts sales of tangible personal property or services purchased by a contractor to construct, equip, reconstruct, maintain, repair, enlarge, furnish, or remodel facilities for a political subdivision (or public/private nonprofit hospital, school, or educational institution) when paid from that entity's funds; requires the entity to obtain a project exemption certificate from the State and furnish it to the contractor. The Department applies the project certificate to materials, services, and supplies that become a physical part of a building project, and holds that repairs to movable items not attached to real property need only the entity's ordinary direct-purchase exemption certificate.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-049

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 23, 2001

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Dear Ms. TTTTTTT:

We wish to acknowledge receipt of your letter dated May 3, 2001, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(d) exempts from sales tax: “all sales of tangible personal property or services purchased by a contractor for the purpose of constructing, equipping, reconstructing, maintaining, repairing, enlarging, furnishing or remodeling facilities for any public or private nonprofit hospital or public hospital authority, public or private elementary or secondary school or a public or private nonprofit educational institution, which would be exempt from taxation under the provisions of this act if purchased directly by such hospital or public hospital authority, school or educational institution; and all sales of tangible personal property or services purchased by a contractor for the purpose of constructing, equipping, reconstructing, maintaining, repairing, enlarging, furnishing or remodeling facilities for any political subdivision of the state, the total cost of which is paid from funds of such political subdivision and which would be exempt from taxation under the provisions of this act if purchased directly by such political subdivision. . . When any political subdivision of the state, public or private nonprofit hospital or public hospital authority, public or private elementary or secondary school or public or private nonprofit educational institution shall contract for the purpose of constructing, equipping, reconstructing, maintaining, repairing, enlarging, furnishing or remodeling facilities, it shall obtain from the state and furnish to the contractor an exemption certificate for the project involved, and the contractor may purchase materials for incorporation in such project. The contractor shall furnish the number of such certificate to all suppliers from whom such purchases are made, and such suppliers shall execute invoices covering the same bearing the number of such certificate. . .

The project exemption certificate provisions provided in K.S.A. 79-3606(d) would apply to purchases of materials, services and supplies which become a physical part of a building erection, repair or enlargement project.

In closing, when a school district has overhead projectors, fish aquariums, oxygen tanks, mowers, tractors, typewriters and sewing machines repaired, the respective school district would not need to obtain a project exemption, since these items are not attached to real property. The school district would simply provide vendor the exemption certificate that is utilized when making direct purchases of tangible personal property or services without 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 in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 05/30/2001 Date Modified: 10/11/2001

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