Is engineering built into a Kansas steel sale taxable, even if billed separately?

Plain-English summary

A steel supplier sold steel for a building: it took the architect's design, calculated the steel needed, ordered it, and shipped it to the jobsite, where someone else erected it. The supplier charged sales tax on the entire order, but the customer objected — arguing that engineering in Kansas isn't taxable, so tax should apply only to the materials. The supplier asked the Department who was right.

The Department sided with the supplier: the whole sale is taxable. Engineering services by themselves are not a taxable service, but when they are part of providing tangible personal property, they are included in the selling price and therefore taxable under K.S.A. 79-3602(ll)(1). Here the in-house engineering was used to determine the quantity, size, dimensions, and shape of the steel and to produce erection drawings — it was part of providing the steel itself. Billing the engineering separately does not make it nontaxable.

What this means for you

Fabricators and material suppliers

If engineering, design, or detailing work is part of producing the goods you sell, its cost is part of the taxable selling price of those goods — whether or not you list it as a separate line item. Separately stating it does not carve it out of the tax base.

Buyers of fabricated materials

Don't assume a "materials only" split removes tax from the design/engineering that went into making the materials. When that work is embedded in producing the product, Kansas taxes the full price.

Common questions

Q: Are engineering services taxable in Kansas?
A: Not on their own. But when engineering is part of providing tangible personal property (like producing steel), it is included in the taxable selling price under K.S.A. 79-3602(ll)(1).

Q: Does billing the engineering separately make it nontaxable?
A: No. The Department said separately billing the engineering that goes into designing and producing the steel does not make it nontaxable.

Q: So is tax due on the whole order or just the steel?
A: On the whole order. The engineering here was part of the price of the steel being supplied.

Q: Does this ruling apply to me?
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 reasons.

Citations and references

• K.S.A. 79-3602(ll)(1) — defines "selling price," which includes services that are part of providing the tangible personal property. The Department relied on this to hold that in-house engineering embedded in producing and supplying the steel is part of the taxable selling price, even if billed separately.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2014-006

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

October 23, 2014

XXXXXXX
XXXXXXXXXX
XXXXXXXXX
XXXXXXXXXXX

Dear XXXXXX:

We wish to acknowledge receipt of your recent inquiry regarding the application of Kansas Retailers’ Sales tax. You inquired regarding the taxability of a material only sales of steel to your customer. You charges sales tax on the entire order but the purchaser contends that engineering in Kansas in not taxable and you should charge sales tax only on the materials.

The design of the building was provided by an architect. You calculated the steel necessary to construct the building, ordered the steel and shipped it to the jobsite where it was erected by someone else. Your understanding of a material only sale, which includes the in-house engineering necessary to order the steel and produce erection drawings to the erector, that the whole sale is taxable. The purchaser is disputing the sales tax on the engineering services.

Engineering services, by themselves, are not a taxable service. However, when they are part of providing the tangible personal property, they are included in the selling price and therefore taxable. See K.S.A. 79-3602(ll)(1). The engineering services were actually part of providing the steel itself: engineering was used to determine the quantity needed to be supplied and the size/dimensions, shape of the steel, etc. Billing separately the engineering that goes into designing and producing the steel components does not make those services nontaxable. They are part of the price of the steel being supplied, whether billed separately or not.

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
Kansas Department of Revenue

Date Composed: 10/27/2014 Date Modified: 10/27/2014

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