Which car-rental charges are subject to Kansas sales tax, and how are coupons and insurance charges treated?

Plain-English summary

A vehicle rental company asked the Department how Kansas sales tax applies to the many separate fees on a car-rental bill. The Department's answer: almost everything is taxable. Most charges billed to the person renting the car are part of the taxable rental price, and it doesn't matter whether they're lumped into one price, listed as separate line items, or split across separate contracts (one for the car, others for extras).

The Department went down the company's list and marked as taxable: airport concession and facility fees, drop charges (returning the car to a different city), child seats, ski racks, GPS navigation, satellite radio, additional-driver and under-25-driver fees, excess-mileage charges, upcharges for non-standard vehicles (minivans, convertibles), frequent-flyer surcharges, fuel and service charges, the fuel-purchase option, loss-damage waiver, energy surcharges, premium roadside service, passed-through vehicle licensing fees, and per-day or rental surcharges.

Insurance charges (a liability-insurance supplement, personal accident insurance, personal-effects coverage) are taxable unless all four of these are true: (1) the charge is itemized on the lease contract, (2) it's for insurance purchased from an insurance company, (3) the renter has the option to buy it or get coverage elsewhere, and (4) the renter is the beneficiary of the policy.

For coupons, the treatment splits by who funds the discount: a manufacturer/third-party coupon (where the retailer is reimbursed by someone else) is taxed on the full price, while a store coupon (funded only by the retailer) is taxed on the discounted price.

The Department also flagged a separate tax: Kansas imposes a 3.5% vehicle rental excise tax on any motor-vehicle rental of 28 consecutive days or less, and that excise tax is in addition to state and local retailers' sales tax.

What this means for you

Car-rental and equipment-rental businesses

Assume the default is taxable. Ancillary fees — GPS, child seats, drop charges, mileage, fuel options, damage waivers, surcharges — are part of the taxable rental price whether or not you break them out on the invoice or move them to a separate contract. Only insurance that clears all four tests, and store-coupon discounts you fund yourself, reduce the tax. Remember to also collect the 3.5% vehicle rental excise tax on rentals of 28 days or less.

Customers renting a car in Kansas

Expect tax on nearly every add-on line item, plus a 3.5% rental excise tax on top of sales tax for short-term rentals.

Common questions

Q: If I put optional extras like GPS or a child seat on a separate contract, are they still taxable?
A: Yes. The Department said these charges are taxed regardless of whether they're lumped with the rental, listed as separate line items, or billed under a separate contract.

Q: Is the loss-damage waiver taxable?
A: Yes, the Department listed the loss-damage waiver as taxable.

Q: When is an insurance charge not taxable?
A: Only if all four conditions are met — itemized on the contract, purchased from an insurance company, the renter can decline it, and the renter is the beneficiary. If any one fails, it's taxable.

Q: Does a coupon reduce the taxable amount?
A: A store coupon you fund yourself reduces it (tax on the discounted price); a manufacturer or third-party coupon does not (tax on the full price, because you're reimbursed).

Q: What is the 3.5% charge the ruling mentions?
A: A separate Kansas vehicle rental excise tax on motor-vehicle rentals of 28 days or less, charged in addition to sales tax.

Citations and references

• Kansas retailers' sales tax on lease/rental charges — the Department's position that most charges billed to a lessee are part of the taxable rental price, taxed whether lumped, separately stated, or split across contracts. (No statute section is cited in the ruling.)
• Insurance four-part test — insurance charges are taxable unless the charge is itemized, buys insurance from an insurance company, is optional to the lessee, and names the lessee as beneficiary.
• Coupon rule — a third-party/manufacturer coupon (retailer reimbursed) is taxed on the full price; a retailer's own store coupon is taxed on the discounted price.
• 3.5% vehicle rental excise tax — a separate Kansas excise tax on motor-vehicle rentals of 28 consecutive days or less, in addition to state and local sales tax. (Described in the ruling; statute not cited.)

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2010-004

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 16, 2010

XXXXX
XXXXXXXX
XXXXXXXXXXX

Dear Mr. XXXXX:

We wish to acknowledge receipt of your recent inquiry regarding the application of Kansas Retailers’ Sales tax. You inquired regarding the tax base for car rentals. Generally most lease charges billed to the lessee are taxable. These are taxed regardless of whether the charges are lumped together with other charges on the customer invoice, or billed as separate line-item charges on the customer’s invoice, or billed under separate contracts with one contract for the vehicle rental and one or more for other charges. Listed below are the items contained in your inquiry.

-Airport concession fees and facilities fees passed to the customer.
Answer: Taxable

-Fee charged for returning vehicle to a city other than the renting city (knows as drop charge).
Answer: Taxable

-Charge for child seat.
Answer: Taxable

-Charge for ski rack.
Answer: Taxable

-Charge for in car navigational (GPS) system.
Answer: Taxable

-Charge for additional driver.
Answer: Taxable

-Charge for drivers 24 years or younger.
Answer: Taxable

-Charge for exceeded mileage.
Answer: Taxable

-Upcharge for non standard vehicles, ie; minivans, convertibles.
Answer: Taxable

-Charge for in car satellite radio.
Answer: Taxable

-Frequent Flyer Surcharge-excise taxes paid on customer awarded frequent flyer miles that are passed onto customer.
Answer: Taxable

-Fuel and Service Charge.
Answer: Taxable

-Fuel Purchase Option.
Answer: Taxable

-Loss Damage Waiver.
Answer: Taxable

-Energy surcharges.
Answer: Taxable

-Liability Insurance Supplement.
Answer: Insurance charges are taxable unless all four of the following conditions are met:
1) the charge is itemized on the lease contract;
2) the charge is for the purchase of insurance from an insurance company;
3) the lessee has the option of buying the insurance or procuring other coverage; and
4) the lessee is the beneficiary of the policy.

-Personal Accident Insurance and Personal Effects Coverage.
Answer: Insurance charges are taxable unless all four of the following conditions are met:
1) the charge is itemized on the lease contract;
2) the charge is for the purchase of insurance from an insurance company;
3) the lessee has the option of buying the insurance or procuring other coverage; and
4) the lessee is the beneficiary of the policy.

-Premium Emergency Roadside Service.
Answer: Taxable

-Vehicle licensing fees passed onto customer.
Answer: Taxable

-$ per day or rental surcharges.
Answer: Taxable

-Discounts for promo coupons.
Answer: Generally two types of coupons may be used by customers and each are treated differently for sales tax purposes.

When a customer uses a manufacturer coupon offered by a third party wholesaler or manufacturer the sales tax is applied to the total price. This is because the retailer will be reimbursed by the manufacturer for the amount of the coupon. With manufacturers coupons the retailer ultimately receives the full price (part from the customer and the coupon amount from the manufacturer) so the sales tax is computed on the full amount which the retailer will receive.

When a customer uses what is considered to be a store coupon offered by a retailer and redeemed only at their business the sales tax is applied to the discounted price. With store coupons the retailer only receives the amount paid by the customer so that is the amount upon which sales tax is charged.

Additional Note: Kansas also imposes a 3.5% vehicle rental excise tax on the rental or lease of a motor vehicle for 28 consecutive days or less. The vehicle rental excise tax is in addition to the state and local retailers’ sales tax.

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,

Jack Smith
Policy and Research

Date Composed: 07/16/2010 Date Modified: 07/16/2010

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