Did a Texas call center with no Kansas property, employees, inventory, or fixed assets have to collect Kansas tax when arranging Kansas electrical subcontractors?

Plain-English summary

Under the Department's 2004 physical-presence analysis, the Texas call center did not have Kansas nexus and did not collect Kansas sales or compensating use tax on its administrative service.

The company had no Kansas location, employees, inventory, or fixed assets. Kansas customers called its Texas center, which then hired nearby electrical subcontractors to perform repair and remodeling work. The call center issued one customer bill including subcontractor cost and markup but did not itself perform the labor.

The Department said the call center's service fell outside both Kansas taxes because the company lacked physical presence or nexus in Kansas.

The Kansas subcontractors' obligations were different:

• they had to charge tax on taxable labor services when appropriate;
• labor on a residence or original construction of a commercial building did not require the charge described; and
• materials used by the subcontractor were taxable when purchased.

Historical caution: this is a 2004 taxpayer-specific nexus ruling expressly subject to later changes in law. Do not apply its physical-presence conclusion without checking current Kansas nexus rules.

What this means for you

Remote service coordinators

Separate your administrative role from the in-state contractor's work, but do not assume the 2004 physical-presence standard remains controlling today.

Kansas subcontractors

Your own labor and material obligations were not removed by the call center's out-of-state status. Classify labor by project type and pay tax on materials.

Common questions

Q: Did the Texas call center collect Kansas tax?
A: No under this ruling's 2004 physical-presence facts.

Q: Did Kansas subcontractors have tax duties?
A: Yes, for taxable labor when appropriate and for materials at purchase.

Q: Is this a safe current nexus rule?
A: The ruling itself says later legal changes revoke it by operation of law; current nexus law must be checked separately.

Citations and references

• K.S.A. 79-3603(p) — installation labor and original construction
• K.S.A. 79-3603(l)(1) — contractor materials

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2004-023

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

June 18, 2004

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Dear XXXXXXXXXX,

This is a formal response to your letter dated December 24, 2003, regarding the application of the Kansas Retailer’s Sales and Compensating Use taxes.

In your letter, you stated:

Our company works essentially as a call center located in Texas. Our customers located in your state would call us in Texas for electrical work needing to be done at their location within your state. We would then contact an electrical subcontractor located in proximity of our customer to furnish electrical work involving labor and materials. This work would be repair and remodel and none of it would be new construction.

We would have NO physical locations, employees, inventory, or fixed assets in your state. We would be administrating the call only and not providing any labor or services ourselves.

We would be submitting one (1) single bill to our customers for the work performed which would include the cost we incurred from our subcontractor’s work and our markup. The billing to our customers would be primarily on a time and material basis with labor and materials being separately stated or quoted amounts with labor and material being given in a lump sum fashion.

The service you provide would fall outside both the Kansas Retailer’s Sales Tax and the Kansas Compensating Use Tax. Your company has neither a physical presence nor a “nexus” in Kansas.

However, be certain that any subcontractor you employ charges and collects from you sales tax when necessary. Such a charge would not be necessary when the service is done on a residence or original construction of a commercial building. See K.S.A. 79-3603(p). Moreover, any materials the subcontractor uses would be taxable when he or she purchases them. See K.S.A. 79-3603(l)(1).

In conclusion, you do not need to charge an additional sales tax for the service you provide. The compensating use tax does not need to be collected either. The subcontractor who provides the service in Kansas, however, needs to charge sales tax for labor services when appropriate. The materials used are always taxable at time of purchase.

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 to you, please contact me at your earliest convenience at (785) 296-5330.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 06/28/2004 Date Modified: 06/29/2004

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