Are pasture cleaning, barn cleaning, excavation, and fence installation performed with a skid-steer subject to Kansas sales tax?

Plain-English summary

The owner of a Bobcat skid-steer service asked how Kansas sales and compensating tax applies to its work - pasture cleaning, barn cleaning, hole drilling in dirt and rock, and fence installation - performed for farmers, ranchers, and residential customers. The Department ruled most of the work is not taxable, with fence (and other) installation the main exception.

Cleaning and clearing land are not taxable. The Department stated that "[t]he service of clearing land and maintaining land (this includes cutting and removing trees and any vegetation, mowing and spraying stumps) for any person or entity is not subject to Kansas retailers' sales tax," and likewise "[t]he service of cleaning out barns or any structure for any person or entity is not subject to Kansas retailers' sales tax."

Excavation is not taxable. "The service of digging, drilling and boring in soil or rock (excavation) is not subject to Kansas retailers' sales tax." This tracks the Kansas Court of Appeals decision In re Bernies' Excavating Services, Inc., 13 Kan. App.2d 476, 772 P.2d 822 (1989), which held that gross receipts from excavation services are not taxable under K.S.A. 79-3603(p).

Installing tangible personal property (like a fence) is taxable - with exceptions. Under K.S.A. 79-3603(p), Kansas taxes "the gross receipts received for the service of installing or applying tangible personal property," except where the work is part of the original construction of a building or facility. And "original construction" under K.S.A. 79-3603(p)(1) excludes remodeling and repair "except with regard to a residence." So installation done at a residence is not taxed; the residence exemption "extends to apartments, nursing homes, dormitories and other similar place where people reside."

Off-residence, separate billing preserves the exemption. When taxable installation and nontaxable excavation are done together at a non-residential site, the excavation stays exempt only if it is "separately billed or separately stated as a line item on a bill." A billing for excavation only, with no installation, is treated as separately billed and exempt.

Bottom line: cleaning, clearing, and excavation are nontaxable; installing a fence or other tangible personal property is taxable unless it is at a residence or part of a building's original construction - and off-residence, separately state the excavation to keep it exempt.

What this means for you

Skid-steer, excavation, and land-clearing operators

Charges for clearing/maintaining land, cleaning barns or structures, and excavation (digging, drilling, boring) are not subject to Kansas sales tax for any customer. You generally do not collect tax on those services.

Watch installation jobs

When you install tangible personal property - a fence being the example here - the labor is taxable unless the job is a residence or part of a building's original construction. Classify each job before deciding whether to charge tax.

Bill excavation separately on mixed jobs

On a non-residential job that combines taxable installation with nontaxable excavation, separately bill or line-item the excavation so it stays exempt. If you lump everything together, you risk taxing the whole charge.

Common questions

Q: Is excavation (digging, drilling, boring) taxable in Kansas?
A: No. The Department, following In re Bernies' Excavating Services, treats excavation as not subject to sales tax under K.S.A. 79-3603(p).

Q: Is installing a fence taxable?
A: Yes, unless it is at a residence or part of a building's original construction. Installing tangible personal property is a taxable service under K.S.A. 79-3603(p).

Q: How do I keep the excavation exempt when I also install something?
A: Off-residence, separately bill the excavation or state it as its own line item. A billing for excavation only is treated as separately billed and exempt.

Citations and references

• K.S.A. 79-3603(p) - imposes sales tax on the service of installing or applying tangible personal property, except when performed in connection with the original construction of a building or facility; the Department applies this so that cleaning, land clearing, and excavation are not taxed, while installation of tangible personal property is.
• K.S.A. 79-3603(p)(1) - defines "original construction" and excludes replacement, remodeling, restoration, renovation, or reconstruction "except with regard to a residence," which is why installation and repair work at a residence is not taxed.
• In re Bernies' Excavating Services, Inc., 13 Kan. App.2d 476, 772 P.2d 822 (1989) - Kansas Court of Appeals held that gross receipts from excavation services are not subject to sales tax under K.S.A. 79-3603(p).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-051

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 7, 2001

XXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Dear XXXXXXXX:

The purpose of this letter is to respond to your second letter dated May 15, 2001. In it, you ask what the sales and compensating apply to the following activities.

I have summarized the pertinent facts of your letter:

We own and operate a Bobcat Skidsteer with attachments. We perform the following services: pasture cleaning, barn cleaning, hole drilling in dirt and rock, and fence installation.

We perform work for farmers, ranchers and residential customers. We also perform work for XXXXXXXXXXX.

The service of clearing land and maintaining land (this includes cutting and removing trees and any vegetation, mowing and spraying stumps) for any person or entity is not subject to Kansas retailers’ sales tax.

The service of cleaning out barns or any structure for any person or entity is not subject to Kansas retailers’ sales tax.

The service of digging, drilling and boring in soil or rock (excavation) is not subject to Kansas retailers’ sales tax. If you install something such as fence you must separately bill for the excavation services. The installation of any tangible personal property is taxable, unless performed in connection with the original construction of a building or facility; or if performed in repair or maintenance of a residence.

The Kansas retailers’ sales tax law imposes tax on “the gross receipts received for the service of installing or applying tangible personal property . . .except that no tax shall be imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building . . .” K.S.A. 79-3603(p).

“Original construction” means “the first or initial construction of a new building. . .and includes the addition of an entire room or floor to any existing building or facility, the completion of any unfinished portion of any existing building or facility and the restoration, reconstruction or replacement of a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion or earthquake, but such term, except with regard to a residence [emphasis added], shall not include replacement, remodeling, restoration, renovation or reconstruction under any other circumstances;” K.S.A 79-3603(p)(1).

Because of the exception for residences, the services performed by you at a residence are not subject to tax. This exemption extends to apartments, nursing homes, dormitories and other similar place where people reside.

The installation or repair services performed by you at a site other than a residence are subject to tax unless the non-taxable services are separately billed or separately stated as a line item on a bill. This means that charges for excavation work may be exempted by separately billing them or by billing them as a separate line item on a bill that involves excavation work and installation or repair services. A billing for excavation services only, that does not involve any installation services, is considered to be separately billed and exempt. This is because of the case of In re Bernies’ Excavating Services, Inc., 13 Kan. App.2d 476, 772 P.2d 822 (1989). In that case the court ruled that the gross receipts from excavation services performed are not subject to Kansas retailers’ sales tax imposed under K.S.A. 79-3603(p).

Stated simply, there are several situations that are exempt or excepted from the imposition of sales tax on excavation services:

Excavation services performed in connection with the original construction of a building or facility.

Excavation services performed in connection with remodeling of a residence.

Excavation services performed at any site, if these services are separately billed or separately stated as a line item on a bill.

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.

Please call me at (785) 296-5330, if you require additional help.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 06/04/2001 Date Modified: 10/11/2001

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