Which of a device seller's charges — installation, training, repairs, warranty, tech support, freight, and others — are subject to Kansas sales tax?

Plain-English summary

An out-of-state company that manufactures and sells electronic access control devices into Kansas asked the Department to sort its various charges into taxable and nontaxable. The Department answered charge-by-charge.

The framework. Kansas taxes sales of tangible personal property and enumerated services. The Department noted that the service of installing or applying property is taxable (with certain exceptions), citing K.S.A. 79-3603(p), and that maintaining, servicing, altering, and repairing tangible personal property and real estate — and maintenance contracts for the same — are taxable under K.S.A. 79-3603(q) and (r).

Taxable charges. The Department listed as subject to tax: the Electronic Access Control Devices, Installations, Repairs, Extended Warranty, Credit Allowance, Management Charge, Artwork Set Up Charge, and Freight. On the credit allowance it added that "if this is a 'trade in' of equipment or a discount, it would reduce sale amount subject to tax."

Nontaxable charges. The Department listed as not subject to tax: Training and a Technical Support program — noting these are "optional to the sale of property and taxable services."

Bottom line: the hardware and the services tied to putting it in and keeping it working (installation, repair, warranty) are taxable, and freight is part of the taxable sale — but genuinely optional training and support sold separately are not.

What this means for you

Sellers of equipment plus services

Expect the product, its installation, and its repair/warranty to be taxable in Kansas, and remember that freight you charge is generally part of the taxable selling price. Break out optional services like training and technical support as separate, elective line items — those can be nontaxable.

"Optional" is doing real work here

The Department treated training and technical support as nontaxable because they are optional to the sale of the property and taxable services. Bundling a nontaxable optional service into a taxable charge, or making it mandatory, can pull it into the tax base.

Trade-ins and discounts reduce the base

A credit allowance is taxable as part of the transaction, but if it functions as a trade-in of equipment or a discount, it reduces the amount subject to tax. Document whether an allowance is a true trade-in/discount versus something else.

Out-of-state sellers

This ruling addresses which charges are taxable, not whether the seller must register to collect. A remote seller's collection duty depends on Kansas nexus rules, which have changed since 2001 (economic-nexus/marketplace laws now apply) — confirm your current collection obligation separately.

Common questions

Q: Is installation of the devices taxable?
A: Yes. Installation is a taxable service under K.S.A. 79-3603(p), subject to certain exceptions.

Q: Are training and technical support taxable?
A: No. The Department found them not subject to tax because they are optional to the sale of the property and taxable services.

Q: Is freight taxable?
A: Yes. The Department listed freight among the taxable charges in this transaction.

Q: How is a credit allowance treated?
A: It is taxable as part of the sale, but if it is a trade-in of equipment or a discount, it reduces the amount subject to tax.

Citations and references

• K.S.A. 79-3603(p) — taxes the service of installing or applying tangible personal property, subject to certain exceptions.
• K.S.A. 79-3603(q) and K.S.A. 79-3603(r) — tax the service of maintaining, servicing, altering, and repairing tangible personal property and real estate, and maintenance contracts for the same.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-140

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 13, 2001

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX

Dear Sirs:

The purpose of this letter is to respond to your letter dated October 31, 2001.

In your letter you stated:

XXXXXXX manufactures Electronic Access Control Devices and Sells them in your State.

Along with these items, we would charge the client for Installations if they require that we install the devices. We would also charge the client for Training if they require that we train them to use our devices. There is also an Extended Warranty program that is available to the client as an optional purchase. Quite often, we repair these devices for our customers, and charge them for the Repairs. We also offer a Technical Support program for a fee & it is up to the client to purchase the program. In the rare case, we grant a Credit Allowance to the client if they are updating their devices. There is also the rare case of a Management Charge or An Artwork Set Up Charge being charged to a client. The client is also charged Freight to send his merchandise to the State with a carrier of his choice. We do not have a physical presence in your state.

Kansas taxes the sale of tangible personal property and enumerated services. The service of installing or apply is taxable, with certain exceptions. See K.S.A. 79-3603(p). Kansas also taxes the service of maintaining, servicing, altering and repairing of tangible personal property and real estate and maintenance contracts for same. See K.S.A. 79-3603(q) and (r). These statutes are available on our web site at www.ink.org/public/kdor.

Your letter continues with a series of questions:

"Are these Items & Services Taxable?" Can you state which items are Taxable and which items are Non- taxable?

Answer: The following sales of property and services are subject to tax in Kansas:

Electronic Access Control Devices, Installations, Repairs, Extended Warranty, Credit Allowance (if this is a “trade in” of equipment or a discount, it would reduce sale amount subject to tax), Management Charge, Artwork Set Up Charge and Freight.

The following items and services are not subject to Kansas sales tax.

Training, Technical Support program that are optional to the sale of property and taxable services.

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: 11/14/2001 Date Modified: 09/23/2002

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