Are the gross receipts from an online information service that sells downloadable teaching ideas subject to Kansas sales tax?

Plain-English summary

A person planning to launch a home-based Internet business in Kansas asked whether the gross receipts from an information service would be subject to Kansas retailers' sales tax. The business would sell "accomplished teaching ideas" contributed by various authors, essentially brokering those ideas; customers would buy the right to download the file (in PDF or PowerPoint format), with no hard copies and nothing mailed - "All transactions will be done electronically." The Department ruled the service is not taxable.

Kansas taxes goods and only listed services. As the ruling explains, "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." Selling downloadable teaching ideas is a service that is not on that enumerated list.

No imposition exists in the law. The Department was direct: "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." So the receipts from the download sales are not subject to Kansas sales tax.

The business is the final consumer of its own inputs. The Department added that 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." A provider of a nontaxable service still pays tax on what it buys to run the operation.

Bottom line: an electronically delivered information service of this kind is not taxable in Kansas, but the provider must pay sales or use tax on its own taxable purchases.

What this means for you

Sellers of downloadable information or digital know-how

If your Kansas business sells information or ideas delivered purely electronically and the service is not one of the specifically enumerated taxable services, you generally do not charge Kansas sales tax on those receipts. Confirm your specific offering is not enumerated before relying on this.

You still owe tax on your inputs

Being a nontaxable service provider does not make your purchases tax-free. You must pay Kansas sales or compensating (use) tax on the computers, software, supplies, and taxable services you buy to deliver the service.

"Enumerated services only" is the key rule for services

Kansas taxes all sales of tangible personal property but taxes services only where a statute specifically lists them. When in doubt about a service, the question is whether it appears on that enumerated list - not whether it is delivered online.

Common questions

Q: Is selling downloadable files (PDF/PowerPoint) of teaching ideas 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 everything electronically change the answer?
A: The ruling treats it as a nontaxable service regardless; the key point is that the service is not among Kansas's specifically enumerated taxable services.

Q: Does the business owe any Kansas tax at all?
A: Yes - it must pay Kansas sales or compensating (use) tax on the tangible personal property and taxable services it purchases to operate the business.

Citations and references

• The Department cited no specific statutory section. Its conclusion rests on the general 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 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-2001-054

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 19, 2001

XXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXX

Dear Ms. XXXXXXXX:

The purpose of this letter is to respond to your letter dated June 1, 2001. In it, you ask if the gross receipts from an 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’m starting a new Internet business and need a private letter ruling on whether or not I need to collect sales tax. Please mail to the above address as soon as possible.

I am based in XXXXXXX, Kansas and will operate the business from my home. The business will offer accomplished teaching ideas for sale over the Internet via an e-commerce site which I own. The ideas will be provided by various authors. Essentially, I will be brokering these ideas. The format for the ideas will be either PDF or PowerPoint. The customer will purchase the right to download the file of the idea. There are no hard copies available to the customer and nothing is mailed out. All transactions will be done electronically.

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: 06/25/2001 Date Modified: 10/11/2001

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