Are gross receipts from cleaning a customer's pans, frames, and racks subject to Kansas sales tax?

Plain-English summary

A business that cleans a customer's pans, frames, and racks — it picks them up, soaks them in large vats, dries them, coats them with oil, and returns them — had been charging and remitting sales tax on the assumption that it was providing a taxable service. After the customer requested a refund, the business asked the Department for a ruling. The Department's answer: the cleaning service is not subject to Kansas sales tax, and the customer is due a refund.

The reasoning. Kansas taxes certain services to tangible personal property under K.S.A. 79-3603(q), which reaches:

"the gross receipts received for the service of repairing, servicing, altering or maintaining tangible personal property . . . whether or not any tangible personal property is transferred in connection therewith."

But cleaning is not one of those taxable services. The Department relied on the Kansas Court of Appeals decision In re Tax Appeal of R & R Janitor Service, 9 Kan. App. 2d 500, 505 (1984), which held that "maintaining" means "keeping in repair or replacing" and is not synonymous with "cleaning." Cleaning services do not constitute "servicing or maintaining" property within the meaning of the statute.

The Department also noted the consumed-in-production exemption at K.S.A. 79-3606(n) (for property consumed in producing goods or providing services for ultimate sale at retail), while cautioning that certain uses are not exempt — "shipping, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing."

Bottom line: pure cleaning of a customer's property is nontaxable in Kansas because it is not repairing, servicing, altering, or maintaining under 79-3603(q). The provider should stop charging tax on it, and its customer may claim a refund of tax paid in error.

This ruling is a companion to P-2002-047, issued the same day, which reached the identical result for a business that cleans cheese residue off a customer's chains — together they confirm the Department treats stand-alone cleaning of a customer's equipment as nontaxable, even where the process (soaking, re-oiling) also readies the items for reuse.

What this means for you

Businesses that clean customers' equipment or property

Stand-alone cleaning — with no repair, servicing, altering, or maintenance — is not a taxable service in Kansas. If you have been charging sales tax on pure cleaning, this ruling indicates you should stop and that your customers may be entitled to refunds.

Re-oiling and reconditioning

Here the process included drying and re-coating the items with oil, yet the Department still treated the job as nontaxable cleaning. But be careful: if a job crosses into repairing, servicing, altering, or maintaining the property, that portion becomes taxable under 79-3603(q). Keep cleaning charges clearly separate from any repair/maintenance work.

Claiming a refund

The customer that paid tax in error is the party entitled to the refund. The Department enclosed a refund form for that purpose; a claim should document the erroneous tax paid.

Common questions

Q: Is cleaning a customer's pans and racks taxable in Kansas?
A: No. The Department advised that cleaning is not the taxable service of repairing, servicing, altering, or maintaining property under K.S.A. 79-3603(q), so the receipts are nontaxable.

Q: The job also re-oils the items — does that make it taxable?
A: Not on these facts. The Department treated soaking, drying, and re-coating with oil as part of nontaxable cleaning. Only work that actually repairs, services, alters, or maintains the property is taxable.

Q: The provider already collected tax — what now?
A: The tax was collected in error. The customer that paid it may file for a refund; the Department enclosed a refund form.

Q: Why isn't cleaning "maintaining"?
A: Because the Kansas courts (In re Tax Appeal of R & R Janitor Service) hold that "maintaining" means keeping in repair or replacing — not cleaning.

Citations and references

• K.S.A. 79-3603(q) — imposes Kansas sales tax on repairing, servicing, altering, or maintaining tangible personal property; the Department held cleaning is not within it.
• K.S.A. 79-3606(n) — exempts tangible personal property consumed in production/processing or in providing services for ultimate retail sale (with cleaning of equipment and physical plant among the non-exempt uses).
• In re Tax Appeal of R & R Janitor Service, 9 Kan. App. 2d 500, 505 (1984) — "maintaining" means keeping in repair or replacing and is not synonymous with cleaning.
• 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-2002-046

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 11, 2002

XXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Dear XXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated April 20, 2002. In it, you request advice on the application of Kansas retailers’ sales tax on the gross receipts from the providing of cleaning services.

In your letter you stated in pertinent part:

XXXXXX is requesting a private letter ruling. On April 18, 2002 XXXX, Inc. received a letter from XXXXXXXXXX requesting sales tax refunds we had charged in the past. Enclosed is the letter. The specific invoices are dated 1-98 through 7-2001.

XXXXXX has been doing business with XXXXXXXXXXXXX since 11-86. They are our only customer. We have been charging sales tax and remitting it to the state of Kansas since we were under the assumption that we provide a service and therefore required to collect sales tax. We have never received any written or verbal communication prior to this letter that we were in error to do so. Because of the letter received we are now in doubt and would like to have clarification in this matter not only to retain our only customer but to continue to follow the letter of the law.

XXXX picks up pans, frames, racks, and etc. from XXXXXXX in our own truck and takes them to our place of XXXXXXXXXXXX. where they are placed in large vats to soak. After various specific times depending on the items they are dried and coated with oil. They are then delivered to XXXXXXXXX. We comply with all city discharge standards and a have a permit from the city of XXXXXXXXX. All discharges are tested by a separate agency and periodically XXXXXXXX pumps out the tanks.

We hope that this has provided you with a description of our business since its inception to the present and that you will respect our right to privacy for the sake of competition in the work place. Once again we need this ruling to continue to service our only customer and still comply with the sales tax rules of Kansas.

The service described in your letter is not subject to Kansas retailers’ sales tax.

Your customer is due a refund of sales taxes paid in error. I have enclosed a form for that purpose.

The following paragraphs explain the Department’s rationale.

K.S.A. 79-3603(q) imposes a sales tax on, “the gross receipts received for the service of repairing, servicing, altering or maintaining tangible personal property . . . which when such services are rendered is not being held for sale in the regular course of business, and whether or not any tangible personal property is transferred in connection therewith. The tax imposed by this subsection shall be applicable to the services of repairing, servicing, altering or maintaining an item of tangible personal property which has been and is fastened to, connected with or built into real property”

In Re Tax Appeal of R & R Janitor Service, 9 Kan. App. 2d 500, 505 (1984) (“Maintaining” is keeping in repair or replacing, and is not synonymous with "cleaning").

The Court stated in part:

“R & R Janitor Service performed various cleaning services such as vacuuming, dusting, cleaning bathrooms, washing windows, and emptying trash. We find that a requirement in an ordinance of a duty ‘to maintain’ does not impose a duty of keeping siphons clean, since ‘to maintain’ is to ‘keep in repair or replace.’ Janitor work is not maintenance under a statute designating a fund for ‘purchasing, constructing, repairing and maintaining buildings for public school purposes; maintenance meaning holding, keeping or preserving them in their existing state or condition.’ The Nevada court held provisions in a contract for ‘repair and maintenance’ did not require parties to keep alleys clean, but did require keeping the alley's surfaces in their original condition. Cleaning services do not constitute ‘servicing or maintaining an item of tangible personal property which has been fastened to, connected with our built into real property’ within the meaning of that statute.”

K.S.A. 79-3606(n) exempts from sales tax: "all sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the providing of services or the irrigation of crops for ultimate sale at retail within or without the state of Kansas; and any purchaser of such property may obtain from the director of taxation and furnish to the supplier an exemption certificate number for tangible personal property for consumption in such production, manufacture, processing, mining, drilling, refining, compounding, irrigation and in providing such services."

The following uses of tangible personal property are not exempt from sales tax: shipping, repairing, servicing, maintaining, cleaning the equipment and the physical plant, and storing.

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: 06/18/2002 Date Modified: 06/18/2002

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