Are vehicle rentals and property sales paid for by an insurance company subject to Kansas sales tax, and is a free loaner vehicle taxable?

Plain-English summary

A business that provides vehicle rentals — sometimes paid for by an insurance company under a policy — asked whether Kansas sales tax applies.

The Department started from the imposition statute it cited, K.S.A. 79-3606(a), which taxes "the gross receipts received from the sale of tangible personal property at retail within this state." "Gross receipts" is the total selling price received in money, credits, property, or other consideration (with a credit allowed for the value of any trade-in).

Applying that, the Department reached two results:

• Sales of tangible personal property and/or vehicle rentals made to insurance companies are taxable. There is no exemption for insurance companies, so the insurer paying the bill does not make the charge exempt.
• A vehicle provided to a customer without charge is not taxable. When there is no charge, there are no taxable gross receipts, so no sales tax is due on that transaction.

What this means for you

Auto body shops, dealers, and rental providers

If you rent a vehicle (or sell parts/property) and an insurance company pays the bill, charge Kansas sales tax on the rental or sale just as you would if the customer paid directly. The identity of who pays — the customer or their insurer — does not create an exemption.

Free loaner or courtesy vehicles

If you provide a vehicle at no charge, there are no gross receipts and no sales tax is due on that loan. (If any charge is made, the charge is taxable.)

Insurance-billed transactions generally

Don't treat "billed to insurance" as a shortcut to tax-exempt. Kansas taxes the retail transaction; an insurer is not among the entities whose purchases are exempt.

Common questions

Q: An insurance company pays for a rental car for my customer. Do I charge sales tax?
A: Yes. Vehicle rentals paid for by an insurance company are taxable; there is no insurance-company exemption.

Q: I give a customer a loaner car for free while theirs is repaired. Is that taxable?
A: No. A vehicle provided without charge produces no gross receipts, so no sales tax is due on it.

Q: Does it matter that the insurer, not my customer, is paying?
A: No. Kansas taxes the gross receipts from the transaction regardless of whether the customer or their insurer pays.

Q: Does this ruling apply to my business?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department treats insurance-paid rentals and free loaners.

Citations and references

• K.S.A. 79-3606(a) — cited by the Department as imposing Kansas sales tax on "the gross receipts received from the sale of tangible personal property at retail within this state." The Department found no exemption for insurance companies, so vehicle rentals and property sales they pay for are taxable.
• Gross receipts — the total selling price received in money, credits, property, or other consideration, with a credit allowed for a trade-in. A transaction with no charge yields no gross receipts and no tax.
• 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-2003-035

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 2, 2003

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Dear TTTTTTTTTT:

We wish to acknowledge receipt of your letter dated May 21, 2003, regarding the application of Kansas Retailers' Sales tax.

K.S.A. 79-3606(a) imposes a sales tax: "upon the gross receipts received from the sale of tangible personal property at retail within this state."

"Gross receipts" means the total selling price or the amount received as defined in the Kansas Retailers' Sales Tax Act, in money, credits, property or other consideration valued in money from sales at retail within this state. The taxpayer may take credit in the report of gross receipts for an amount equal to the allowance given for the trade-in of property.

Please be advised that sales of tangible personal property and/or vehicle rentals made to insurance companies would be subject to the appropriate Kansas sales tax(es), as there is not an applicable exemption.

In closing, when vehicles are provided to your customer without charge, there would not be any sales tax due on this transaction.

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: 06/05/2003 Date Modified: 06/05/2003

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