Are labor services performed on a fraternity house at a state university exempt from Kansas sales tax as work on a residence?

Plain-English summary

A contractor doing repair work on a fraternity house at a state university asked whether it must charge Kansas sales tax on its labor services. It already recognized that tax is due on the materials and fixtures it buys for the job. The Department's answer: the labor is exempt — the fraternity house is a residence.

Why. Notice 98-02 implements 1998 Senate Bill No. 493, which created a broad exemption for labor services performed on Kansas residences. The Notice defines residences to include:

"single family homes, duplexes, townhouses, condominiums, rooming houses, boarding houses, apartment houses, nursing homes, retirement homes, dormitories, or any other enclosure that has been constructed for use as a place of human habitation."

The Department concluded that fraternity and sorority houses are "enclosure[s] . . . constructed for use as a place of human habitation," so repair labor on them qualifies for the exemption. It observed that such houses are wholly devoted to housing their members — sleeping areas, food-preparation areas, lounges, bathrooms, study areas, a house-mother's rooms, and recreational facilities — and, unlike a nursing home, do not contain areas devoted to administration or nursing care that would require a residential/commercial square-footage allocation.

What's exempt vs. taxable. All the listed work on the house itself is exempt labor: repairing and replacing drywall, floors, ceilings, doors and hardware, and broken windows. The contractor still pays sales tax on materials and fixtures. The only taxable labor identified is work done on study desks — if they are not built into the building (i.e., freestanding furniture rather than part of the realty).

Bottom line: repair labor on a fraternity/sorority house is exempt residential labor; materials and fixtures are taxable, and labor on non-built-in furniture (like standalone desks) is taxable.

What this means for you

Contractors working on group housing

Labor to repair or remodel fraternity houses, sorority houses, dormitories, boarding/rooming houses, apartments, nursing and retirement homes — anything constructed for human habitation — is generally exempt residential labor in Kansas. Don't charge sales tax on that labor.

Always tax the materials

The residential exemption is for labor only. You still owe sales tax on the materials and fixtures you purchase for the job, as the contractor here correctly acknowledged.

Watch furniture and mixed-use buildings

Labor on freestanding furniture (like study desks not built into the building) is taxable — it's work on tangible personal property, not the residence. And if a building mixes residential and commercial use, labor that can't be assigned to one or the other must be allocated by square footage of the exclusively-residential and exclusively-commercial areas.

Common questions

Q: Is repair labor on a fraternity house taxable in Kansas?
A: No. The Department treats a fraternity/sorority house as a residence, so labor to repair it is exempt under Notice 98-02 (1998 Senate Bill No. 493).

Q: Does the exemption cover the materials too?
A: No. The exemption is for labor services only; the contractor still pays sales tax on the materials and fixtures it buys.

Q: Is any of the labor taxable?
A: Yes — labor on study desks that are not built into the building is taxable, because that is work on freestanding tangible personal property rather than the residence.

Q: What if a building is part residential, part commercial?
A: Labor that can't be entirely assigned to one use is allocated based on the square footage of the exclusively-residential and exclusively-commercial areas.

Citations and references

• Notice 98-02 — Department notice implementing the residential labor-services exemption; defines "residences" to include dormitories and "any other enclosure . . . constructed for use as a place of human habitation," and sets the residential/commercial square-footage allocation rule.
• 1998 Senate Bill No. 493 — the enactment that created the broad exemption for labor services performed on Kansas residences.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-034

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

April 9, 2002

XXXX
XXXX
XXXX

RE: Your fax received April 2, 2002

Dear XXXX:

Thank you for your recent fax. You ask if sales tax should be charged on labor services performed to a fraternity house at a state university. You correctly acknowledge that tax is due on all the materials and fixtures that you purchase to perform the work.

Notice 98-02 was issued to implement 1998 Senate Bill No. 493. This enactment provided a broad exemption for labor services that are performed on Kansas residences. The Notice discusses what enclosure qualify as residences: "Residences include single family homes, duplexes, townhouses, condominiums, rooming houses, boarding houses, apartment houses, nursing homes, retirement homes, dormitories, or any other enclosure that has been constructed for use as a place of human habitation." Fraternity and sorority houses are "enclosure[s] that has been constructed for use as a place of human habitation." Accordingly, the repair work that you are doing to the fraternity house qualifies for this exemption.

The Notice goes on: "If a building is used for both residential and commercial purposes, charges for labor services that cannot be entirely assigned to the residential or commercial portions of a building shall be allocated based on the square footage of the areas that are exclusively residential and exclusively commercial." My college experience suggests that fraternity and sorority houses in the mid-west are wholly devoted to housing the members who live in them. This includes sleeping areas, food preparation areas, lounges, bathroom facilities, study facilities, rooms for house mothers, and recreational facilities. Our telephone conversation tended to confirm this view of the house you are doing the work on. Unlike a nursing home, fraternity and sorority houses do not contain areas that are devoted to administration, nursing care, or similar use.

Accordingly, all of the work you have listed as being done to the fraternity house itself is exempt. This includes repairs and replacement of drywall, floors, ceilings, doors and hardware and broken windows. The only thing that would be taxable is work done on study desks, if they are not built into the building.

I hope that this adequately answers all of your questions. If not, please call me at 785-296-3081. 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 affects this private letter ruling.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 04/17/2002 Date Modified: 04/18/2002

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