Under Kansas destination-based sourcing, is a shipped gift taxed at the store's location or the recipient's location?

Plain-English summary

A retailer that sells gift baskets and ships them to third-party recipients asked how Kansas's new destination-based sourcing rules apply. (The retailer noted Wyoming had told it that state sources such a sale to the seller's location.) Kansas reaches a different result.

The rules, effective July 1, 2003, are in Section 16 of House Bill 2005. The statutory language sources a retail sale as follows:

• When the product is received by the purchaser at the seller's business location, the sale is sourced to that business location; and
• When the product is not received at the seller's business location, the sale is sourced to where receipt by the purchaser — or the purchaser's donee — occurs, including the delivery location indicated by the purchaser's instructions.

Applying that to gift baskets:

• If the customer comes into the store and takes the basket, the store location's state and local tax applies.
• If the customer instead instructs the seller to mail or deliver the basket to someone else, the state and local tax at that shipping/delivery address applies.

The Department noted this "donee" sourcing language must be adopted for a state to join the Streamlined Sales Tax Agreement, and it did not opine on Wyoming's differing statute.

What this means for you

Florists, gift-basket, and gift retailers

When you ship a gift to a recipient at the buyer's request, charge the state and local rate for the delivery address, not your store. When the buyer walks out with the item, use your store's rate.

Online and phone-order sellers

Capture the recipient's delivery location — that address drives the Kansas rate for shipped gifts. The billing customer's location does not control when the goods go to a donee.

Multistate sellers

Sourcing rules differ by state (the ruling flags that Wyoming reportedly sources such a sale to the seller's location). Apply each state's own rule; for Kansas, shipped gifts are sourced to the donee's delivery address.

Common questions

Q: A customer buys a gift basket and has me ship it to a friend — whose rate do I charge?
A: The state and local rate at the friend's (donee's) delivery address, under Kansas destination sourcing.

Q: What if the customer takes the basket at my store?
A: Then the sale is received at your business location, and your store location's rate applies.

Q: Wyoming told me to use my business location — is Kansas the same?
A: No. The Department applied Kansas's donee-delivery sourcing and did not adopt Wyoming's approach; it did not review the Wyoming statute.

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 sources shipped-gift sales.

Citations and references

• House Bill 2005, Section 16 — Kansas's destination-based sourcing statute (effective July 1, 2003). It sources a sale to the seller's business location when the purchaser receives the product there, and otherwise to where the purchaser or the purchaser's donee receives it, per the purchaser's delivery instructions. The Department applied it to source shipped gift baskets to the delivery address.
• 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-2003-037

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 23, 2003

XXXX
XXXX
XXXX

Re: Your Letter to Secretary Wagnon dated July 16, 2003

Dear XXXX:

Secretary Wagnon has forwarded to me your letter for response. You have requested a private letter ruling concerning how the new destination-based sourcing rules would apply to a situation in which someone orders a gift basket from your business and requests that you mail or deliver it to someone else at a different location as a gift. You indicated that you had contacted the Wyoming Department of Revenue (Wyoming being a destination-based sourcing state), and they advised that under their interpretation, the state and local sales tax in effect at your business location should apply to the transaction.

The new destination-based sourcing rules effective beginning July 1, 2003 in Kansas are contained in Section 16 of House Bill 2005. The relevant statutory language provides:

(a) the retail sale . . . of a product shall be sourced as follows: (1) When the product is received by the purchaser at the business location of the seller, the sale is sourced to that business location; (2) when the product is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser, or the purchaser's donee, [italics added] designated as such by the purchaser, occurs, including the location indicated by instructions for delivery to the purchaser or donee, know to the seller. . . .

Based on the above language, if a customer enters your business premises and purchases a gift basket from you, taking possession of the product at your location, the state and local sales tax in effect at that location applies. If a customer orders a gift basket from your business and, instead of entering your business premises and taking possession of the gift basket, instructs you to mail or deliver the gift basket to someone else at a different location, then the state and local sales tax in effect at that shipping or delivery address applies to the transaction.

I have not reviewed the Wyoming destination-based sourcing statute, which could differ from the above language. However, in order for Kansas (or any other state) to be eligible to join the Streamlined Sales Tax Agreement, the above language must be adopted. Please let me know if you have additional questions.

Very truly yours,

Richard L. Cram

cc: Joan Wagnon

Date Composed: 07/24/2003 Date Modified: 07/24/2003

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