Does a Kansas fulfillment center collect sales tax on books it ships for publishers, or do the publishers?

Plain-English summary

A Kansas company runs a fulfillment warehouse: it stores books and other materials owned by publishers (more than a hundred publisher-clients), bills each publisher a monthly storage charge, and ships the books to retailers and consumers as directed by the publisher. The warehouse owns none of the materials. It asked how Kansas sales tax applies when it ships a publisher's books to buyers.

Who is the "retailer"? The Department's answer: the fulfillment center is not a "retailer" and is not required to collect Kansas sales or use tax on the items it ships for publishers. The publishers are the retailers and must collect Kansas sales and use tax on a taxable sale whenever delivery is made to a Kansas consumer — this covers both shipments from the Kansas warehouse and shipments the publisher makes from outside Kansas to Kansas addresses.

Why the publisher is a Kansas retailer. A publisher that warehouses books in Kansas for retail sale and delivery to Kansas addresses is, by definition, a Kansas retailer — "a person regularly engaged in selling tangible personal property" within Kansas (K.S.A. 79-3602(d)). That interstate commerce was used to arrange a sale does not change the fact that delivery is from a Kansas warehouse to a Kansas customer, so the transfer of property takes place wholly within Kansas (K.S.A. 79-3602(e); citing Montgomery Ward & Company, Inc. v. Commission of Revenue and Taxation, 156 Kan. 408 (1943)). Because the publisher owns and maintains property in Kansas to make retail sales here, it also has nexus for compensating (use) tax and is "a retailer doing business in this state" (K.S.A. 79-3702(h)).

Local (city/county) tax sourcing. For Kansas publishers — those with offices or other real property in Kansas — local sales tax is collected based on their business location, or as otherwise fixed by K.A.R. 92-21-6. For non-resident publishers, local sales tax is collected based on the business address of the warehouse, since their property is located in Kansas and is shipped to another Kansas address.

What this means for you

Fulfillment and 3PL operators

If you only warehouse and ship goods you do not own, you are not the retailer and do not collect sales tax on your clients' sales. Your monthly storage charge is a separate matter, but you are not responsible for the tax on the goods you ship on a client's behalf.

Publishers and other product owners using a Kansas warehouse

Storing your inventory in a Kansas fulfillment center makes you a Kansas retailer with an obligation to collect Kansas sales and use tax on taxable sales delivered to Kansas buyers — and it establishes use-tax nexus. You cannot push the collection duty onto the fulfillment center.

Confirm current local-sourcing rules

This 2002 ruling applies Kansas's pre-2003 origin-based local-tax sourcing (seller/warehouse location). Kansas moved to destination-based sourcing for local tax under 2003 legislation, so confirm the current sourcing rules before applying the local-tax portion of this ruling to a present-day shipment.

Common questions

Q: Does the fulfillment center collect Kansas sales tax on the books it ships?
A: No. The fulfillment center is not a retailer and does not collect sales or use tax on items it ships for publishers.

Q: Who must collect the tax?
A: The publishers, as the retailers, must collect Kansas sales and use tax on taxable sales delivered to Kansas consumers — including shipments from the Kansas warehouse and from outside Kansas to Kansas addresses.

Q: Does storing inventory in a Kansas warehouse create nexus for the publisher?
A: Yes. A publisher that owns and maintains property in Kansas to make retail sales has nexus for compensating (use) tax and is a retailer doing business in the state.

Q: How is local sales tax sourced?
A: For a Kansas publisher, to its own business location (K.A.R. 92-21-6); for a non-resident publisher, to the warehouse's address. Note that Kansas later adopted destination-based sourcing, so confirm the current rule.

Citations and references

• K.S.A. 79-3602(d) — defines a "retailer" as a person regularly engaged in selling tangible personal property within Kansas.
• K.S.A. 79-3602(e) — the transfer of property takes place wholly within Kansas when delivery is warehouse-to-customer in-state.
• K.S.A. 79-3702(h) — a retailer owning/maintaining property in Kansas is "doing business in this state" for compensating (use) tax nexus.
• K.A.R. 92-21-6 — local sales tax sourcing rule referenced for a Kansas publisher's business location.
• Montgomery Ward & Company, Inc. v. Commission of Revenue and Taxation, 156 Kan. 408, 133 P.2d 1008 (1943) — use of interstate commerce to arrange a sale does not change that delivery is in-state.
• 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-2002-074

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 19, 2002

XXXX
XXXX
XXXX

RE: Your letter dated June 25, 2002

Dear XXXX:

Thank you for your recent letter. You are the president of a fulfillment corporation that owns and operates a warehouse in Kansas. The business warehouses books and other materials that are owned by publishers. Currently, you do business with more than one-hundred publisher-clients. You bill each of them a monthly storage charge. An important part of your business is to ship books to retailers and consumers as directed by the publisher. Several of the publishers have offices or plants in Kansas. Most of them have no buildings or offices here. Your business does not own any of the published materials that you warehouse.

You are expanding your business. You want to provide new clients with an accurate description about how Kansas sales tax applies to the transaction when you ship their books to purchasers. Answering your question is relatively simple and straightforward. Explaining why the answer is correct is more involved.

As a fulfillment center in Kansas, your business is not a "retailer" and is not required to collect Kansas sales or use tax on items that you ship for publishers. The publishers are "retailers" and are required to collect Kansas sales and use tax on a taxable sale if delivery is made to a consumer in Kansas. This includes the shipments made from your warehouse here as well as the shipments that the publisher makes from locations outside Kansas to Kansas addresses. For Kansas publishers, which are publishers with offices or other real property in Kansas, local sales tax should be collected based on their business location or as otherwise fixed by K.A.R. 92-21-6. For non-resident publishers local sales tax should be collected based on the business address of your warehouse, since their property is located in Kansas and is being shipped to another address in Kansas.

The publishers that warehouse books in Kansas for retail sale and delivery to Kansas addresses are "retailers" for purposes of the Kansas retailers' sales tax act. Under the sales tax act, such a publisher is, by definition, a Kansas retailer since the publisher is "a person regularly engaged in selling tangible personal property" within Kansas. K.S.A. 79-3602(d). The fact that interstate commerce may have been used to arrange the sale does not alter the fact that delivery is from a Kansas warehouse to a Kansas customer. See e.g Montgomery Ward & Company, Inc. v. Commission of Revenue and Taxation, 156 Kan. 408, 133 P.2d 1008 (1943). As such, the transfer of property takes place wholly within Kansas. See K.S.A. 79-3602(e). Since the publisher owns and maintains property within Kansas in order to make retail sales here, the publisher also has nexus for compensating tax purposes and is "a retailer doing business in this state" for purposes of the Kansas compensating tax act. K.S.A. 79-3702(h).

I believe that I have answered all of your questions. If you have more, please call me at 785-296-3081 and we will discuss them. 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,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 08/26/2002 Date Modified: 08/26/2002

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