When are a Kansas spa retailer's sales to out-of-state customers subject to Kansas sales tax, and how are delivery, repairs, and shipping charges taxed?

Plain-English summary

A retailer that sells self-contained portable spas and has stores in Kansas and Missouri asked whether its sales to out-of-state customers are subject to Kansas sales tax. The Department's answer turns on where the customer takes delivery.

Spas are taxable property. Kansas imposes retailers' sales tax on the retail sale of tangible personal property and enumerated services under K.S.A. 79-3603, and spas/hot tubs are not exempt. The tax is measured by the retailer's gross receipts, which include any shipping and handling charges.

Delivery location decides the tax. A sale normally takes place where and when the property is delivered to the buyer:

• Delivered to a Kansas address → the sale occurs in Kansas and is subject to state and local sales tax, no matter how it is shipped.
• Delivered to an out-of-state address by the U.S. Postal Service, a common carrier (such as UPS), or on the retailer's (or its agent's) truck → the sale is treated as occurring in the delivery state and is not subject to Kansas tax (it is subject to the other state's use tax).
• Picked up in Kansas by an out-of-state customer → delivery occurs in Kansas, so the sale is taxable here. (A delivery to a contract carrier acting as the buyer's agent is likewise a Kansas delivery.)

So a Missouri, Nebraska, or Iowa customer who takes delivery at the Kansas store owes Kansas tax; if delivery occurs outside Kansas, the sale is subject to the destination state's use tax instead.

Repairs, moves, and shipping. Spa repair service performed at a residence is exempt; the same service at a nonresidential location is taxable; parts are always taxable, residential or commercial. Moving a spa from one home to another is an exempt residential service. And when the retailer ships chemicals or other property to an in-state destination, the shipping/handling charges are part of the taxable gross receipts.

Bottom line: the deciding factor is delivery location — Kansas delivery (including in-store pickup) is taxable; out-of-state delivery is not. Residential repair labor is exempt, but parts and in-state shipping charges are taxable.

What this means for you

Retailers selling to out-of-state buyers

Do not assume an "out-of-state customer" means a tax-free sale. If the buyer takes delivery in Kansas — including picking the item up at your store — you must charge Kansas state and local tax. Only when you deliver to an out-of-state address (by mail, common carrier, or your own truck) is the sale outside Kansas tax.

Watch the "buyer's agent" carrier trap

A delivery to a contract carrier that is acting as the buyer's agent counts as a Kansas delivery and is taxable. Know whose agent the carrier is before treating a shipment as an exempt out-of-state sale.

Repairs, moves, parts, and freight

Spa repair labor at a residence is exempt; the same labor at a commercial site is taxable, and parts are always taxable. Moving a spa between homes is an exempt residential service. And shipping and handling charges on in-state deliveries are part of your taxable gross receipts — bill and remit tax on them.

Common questions

Q: A Missouri customer buys a spa at our Kansas store — do they pay Kansas tax?
A: Yes, if the customer takes delivery in Kansas. If delivery occurs outside Kansas, the sale is subject to the other state's use tax instead.

Q: Are spas or hot tubs exempt from Kansas sales tax?
A: No. Spas are taxable tangible personal property.

Q: Do we charge tax on shipping charges when we ship chemicals to an in-state customer?
A: Yes. When shipping property to an in-state destination, the shipping or handling charges are part of the gross receipts subject to Kansas retailers' sales tax.

Citations and references

• K.S.A. 79-3603 — imposes Kansas retailers' sales tax on retail sales of tangible personal property and enumerated services, measured by the retailer's gross receipts (which include shipping and handling); the basis for taxing spa sales delivered in Kansas.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-082

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 27, 2001

XXXXXXX

Dear XXXXX:

The purpose of this letter is to respond to your letter dated July 19, 2001. In it, you ask if your sales to out of state customers are subject to Kansas sales tax.

In your letter you stated:

We are a retail company that sells self contained portable spas. The spas are electrically 220 volt hardwired to the residence. No plumbing is necessary. Most customers place the spa on a patio or deck. Some customers build decking around the spa. Some customers build a room around the spa or put them inside their home.

Kansas law imposes retailers’ sales tax on the retail of tangible personal property and enumerated services pursuant to K.S.A. 79-3603. The law imposes tax on the gross receipt of the retailer. The retailer gross receipt includes any charges for shipping and handling. Deliveries from Kansas to another state are not subject to Kansas tax. Deliveries in state are taxable to Kansas. A sale normally takes place at the time and place that property is delivered to the buyer. If a Kansas retailer makes delivery to a Kansas address, the sale occurs in Kansas and is subject to state and local sales tax. This rule applies regardless of how an item is shipped or delivered.

If a Kansas retailer makes delivery to an out-of-state address by the US Postal Service, by common carrier such as UPS, or on the retailer’s truck or on the truck of the retailer’s agent, the sale is regarded as taking place in the state of delivery and is not subject to Kansas tax. When an out-of-state resident picks up something in Kansas, delivery occurs here and the sale is subject to state and local sales tax. These delivery rules make a delivery to a contract carrier taxable when the carrier is acting as the buyer’s agent.

Your letter continues with a series of questions.

Are spas/hot tubs sales tax exempt?

Answer: No.

We have a retail store in Kansas and in Missouri. If a customer from Missouri purchases a spa at our Kansas store does he pay Kansas sales tax?

Answer: Yes, if the customer takes delivery in Kansas you must tax the sale. If delivery occurs outside of Kansas the sale is subject to the other state’s use tax.

If a customer from Nebraska or Iowa (where we do not have stores) purchases a spa from our Kansas store are they sales tax exempt?

Answer: No, if the customer takes delivery in Kansas you must tax the sale. If delivery occurs outside of Kansas the sale is subject to the other state’s use tax.

If we do service repair work to a spa do we charge sales tax on the parts, service call or labor?

Answer: The service is exempt, if performed at a residence. If the service is performed at nonresidential location, then the service is taxable. Parts are always taxable, residential or commercial.

If we move a spa from one home to another home do we charge sales tax?

Answer: The service is exempt, if performed at a residence.

If we ship chemicals to a customer via UPS do we charge sales on shipping charges?

Answer: Yes, when shipping property to an instate destination, any shipping or handling charges are a part of the gross receipt subject to Kansas retailers’ sales tax.

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: 08/01/2001 Date Modified: 10/11/2001

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