Are the gross receipts from a custom statistical-modeling information service — delivered as technical specifications or as electronic score output — subject to Kansas sales tax?

Plain-English summary

A company that builds custom statistical models — credit, collection, behavior, recovery, and marketing models — asked whether the gross receipts from that information service are subject to Kansas sales tax. It described two delivery methods: (1) building a model and delivering written technical specifications (a report the client uses to write its own program, sometimes with added regression-formula analysis); and (2) building a model, running its own computer program, and selling the client the output scores (credit, behavior, or recovery scores) sent electronically over the internet. It asked whether either option is taxable. The Department ruled the service is not taxable.

How Kansas decides. The Department applied its two-step test: first, does the sales-tax act generally impose tax on this type of transaction; second, is there an exemption? Sales of tangible personal property are generally taxable, but services are taxed only when specifically enumerated in the act.

No imposition on this service. The Department concluded that "no imposition exists in the law to impose Kansas sales tax on the services as described in this letter." Because the statistical-modeling service is not an enumerated taxable service, neither delivery method — technical specifications or electronic score output — is taxed.

The provider pays tax on its own purchases. The company must pay Kansas sales and compensating taxes on all purchases of tangible personal property and taxable services it uses or consumes in the business.

Bottom line: a custom statistical-modeling information service is a nontaxable service in Kansas (no statutory imposition), regardless of whether it is delivered as written specifications or as electronic scores, but the provider still owes sales/use tax on its own inputs.

What this means for you

Data-analytics and modeling service providers

If your service is not among Kansas's specifically enumerated taxable services — here, building statistical models and delivering specifications or scores — your receipts are not subject to Kansas sales tax. Enumeration is the key: Kansas taxes services only when the statute names them.

Delivery format didn't change the result

The Department treated both a written report and electronically delivered scores as the same nontaxable service. Delivering results by internet did not create a taxable sale of tangible personal property here.

You are the consumer of your inputs

A nontaxable service provider pays sales or compensating (use) tax on the tangible personal property and taxable services it buys — computers, software, supplies. You cannot buy those inputs for resale.

Common questions

Q: Is a custom statistical-modeling service taxable in Kansas?
A: No. The Department found no imposition in the law to tax the service as described, whether delivered as technical specifications or as electronic score output.

Q: Does delivering scores electronically make it taxable?
A: No. The Department treated electronic delivery of the model output the same as the written-specifications option — both nontaxable.

Q: Does the company owe any tax?
A: Yes — on its own purchases. It must pay Kansas sales and compensating taxes on the tangible personal property and taxable services it uses or consumes.

Citations and references

• The Department did not cite a specific statutory section. Its conclusion rests on the general Kansas rule that services are taxed only when specifically enumerated in the sales-tax act — and the custom statistical-modeling service is not enumerated, so no imposition reaches it and the receipts are not taxable.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-064

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 22, 2001

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXX

Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter received by this office on June 12, 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:

We are a XXXXX based Corporation. We may be conducting business with a XXXX Corporation. Our Company sells custom statistical credit, collection, behavior, recovery and marketing models.

There are two ways we can distribute our information.

1. We build a custom statistical model and prepare technical specifications.
   Technical specifications is a report which the company, we are selling to, uses to write a computer program to implement the model. Sometimes included with this work is further analysis work regarding this problem. (regression formulas)

2. We build a custom statistical model, write a computer program for our computer in XXXX and sell the client the output from the model. The output of a statistical model is a score via credit score, behavior score or recovery score. These scores are electronically sent to the client via Internet.

Our Company needs to know if any of this work is subject to Kansas sales tax. If so are both options I and 2 subject to sales tax.

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: 06/26/2001 Date Modified: 10/11/2001

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