Are hydrovacing (hydro-excavation) services subject to Kansas sales tax?

Plain-English summary

A provider of hydrovacing (hydro-excavation — using pressurized water and vacuum to excavate soil) asked whether the service is subject to Kansas sales tax. The Department's answer: no, if it is separately stated — treat it like excavating.

The framework. The Department quoted K.S.A. 79-3603(p), which taxes "the gross receipts received for the service of installing or applying tangible personal property... except that no tax shall be imposed... in connection with the original construction of a building." It also quoted the statute's definition of "original construction" (79-3603(p)(1)) — the first or initial construction of a new building, additions, and rebuilds after disasters — noting that, except for a residence, it does not include later remodeling or renovation.

The holding. Applying that framework, the Department concluded that "hydrovacing services should be given the same sales tax treatment as excavating services and would not be subject to sales tax if the hydrovacing services are separately billed or separately stated as a line item on a bill." Excavation is site/ground work, not a taxable service of installing or applying tangible personal property — and the Department extended that same non-taxable treatment to hydrovacing.

The "separately stated" condition is doing real work. The exemption from tax here depends on the hydrovacing being broken out on the bill. If it is bundled into a larger taxable charge (for example, a taxable installation service), it could lose its separate, non-taxable character. Separately billing or line-iteming the hydrovacing keeps it non-taxable.

Bottom line: hydrovacing is excavation-type work, so it is not subject to Kansas sales tax — as long as you separately bill or separately state it on the invoice.

What this means for you

Hydrovacing and excavation contractors

Your hydrovacing/hydro-excavation service is not taxable in Kansas, because the Department treats it the same as excavating. Make sure you separately bill or line-item the hydrovacing on invoices so its non-taxable character is preserved.

Beware bundling

The non-taxable treatment is tied to separate statement. If you fold hydrovacing into a single lump charge with taxable installation or other taxable services, you risk the whole charge — or the hydrovacing portion — being treated as taxable. Keep the line items distinct.

Materials are still materials

This ruling addresses the service. Any tangible personal property you sell or the taxable services you consume to perform the work follow their own rules; the excavation-type labor is what the Department treated as non-taxable.

Common questions

Q: Are hydrovacing services taxable in Kansas?
A: No, provided they are separately billed or separately stated as a line item. The Department treats hydrovacing the same as excavating services, which are not subject to Kansas sales tax.

Q: Why does "separately stated" matter?
A: Because the non-taxable treatment depends on the hydrovacing being broken out on the bill. Bundling it into a larger taxable charge can cause it to be taxed.

Q: What is the legal basis?
A: The Department reasoned from K.S.A. 79-3603(p), which taxes the service of installing or applying tangible personal property but not work in connection with the original construction of a building; excavation-type work falls outside the taxable service.

Citations and references

• K.S.A. 79-3603(p) — taxes the service of installing or applying tangible personal property, with an exclusion for work in connection with the original construction of a building or facility; subsection (p)(1) defines "original construction." The Department used this framework to treat hydrovacing like non-taxable excavation when separately stated.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-093

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 4, 2001

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Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated July 18, 2001, regarding the application of Kansas Retailers’ Sales tax.

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).

Please be advised that it is the opinion of this office that hydrovacing services should be given the same sales tax treatment as excavating services and would not be subject to sales tax if the hydrovacing services are separately billed or separately stated as a line item on a bill.

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: 09/14/2001 Date Modified: 10/11/2001

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