Can sales tax, freight, and installation charges be included in the 'retail cost when new' used to value commercial and industrial personal property in Kansas?

Plain-English summary

This 1997 memorandum from the Director of Property Valuation told county appraisers and clerks how to apply a Kansas Supreme Court decision about what belongs in the "retail cost when new" figure used to value commercial and industrial personal property for property tax. The short version: sales tax is never part of that cost, freight and installation can be excluded when they are separately charged and readily identifiable, and whether a taxpayer gets relief depends on when the appeal was filed.

• What the Court held. "In [M]arch, the Court held that sales tax is never part of the retail cost when new of commercial and industrial personal property and that freight and installation charges may be included as part of the cost of the item, except where such costs are separately charged and are readily discernible from the item's price." The case is Board of County Commissioners of Leavenworth County v. McGraw Fertilizer Service, Inc. and Geiger Ready-Mix Co., Inc.
• Retroactive vs. prospective. On the division's motion for reconsideration (order July 11, 1997), the Court held the two litigants "are entitled to have sales tax, freight and installation charges removed from the retail cost when new . . . for all of the years in which they protested," and that "all taxpayers who have, as of March 7, 1997, an appeal or protest pending challenging the inclusion" are "entitled to retroactive relief." "To all other cases the decision is to be applied prospectively." The memo notes this last part "is not clear" — it may mean prospective to tax years 1998 forward, or to the remainder of 1997.
• What counties should do with pre-March 7 appeals. "[P]rocess all such appeals and protests that were filed on or before March 7, 1997" where the issue was raised: "remove any sales tax if it was included in the 'retail cost when new,'" and "remove freight and installation where such costs are separately charged and where such costs are readily discernible from the sales price."
• What counties should do with post-March 7 appeals. Because relief for later-filed appeals is "unclear," the division "recommends that 'no charge' [no change] orders be issued in these cases to allow the taxpayer to appeal to the Kansas Board of Tax Appeals (BOTA)." Granting relief instead could force a later added-tax bill if BOTA denies relief; a "no change" order could require a refund if BOTA grants it. The memo says the division will inform counties once BOTA decides.

What this means for you

Owners of commercial and industrial personal property

When your equipment is valued at "retail cost when new," sales tax should not be in that figure at all. Freight and installation can be excluded too — but only when those charges were separately stated and are readily discernible from the item's price. Keep invoices that break out freight and installation separately.

Whether you get relief turns on your appeal date

Taxpayers who were litigants, or who had an appeal or protest pending as of March 7, 1997, were entitled to retroactive relief for the protested years. For everyone else, the decision applies prospectively. If you filed after March 7, 1997, the memo anticipated a "no change" order pushing the question to the Board of Tax Appeals.

County appraisers and clerks

For pre-March 7, 1997 appeals raising this issue, remove included sales tax and separately stated, discernible freight/installation. For later appeals, the recommended course was a "no change" order preserving the taxpayer's BOTA appeal rather than granting or denying relief outright.

Common questions

Q: Is sales tax part of the "retail cost when new" for property tax valuation?
A: No. The Kansas Supreme Court held sales tax is never part of the retail cost when new of commercial and industrial personal property.

Q: What about freight and installation charges?
A: They may be included as part of the item's cost except where they are separately charged and readily discernible from the item's price — in which case they can be removed.

Q: Did every taxpayer get retroactive relief?
A: No. The litigants and taxpayers with an appeal or protest pending as of March 7, 1997 got retroactive relief for the years protested; for all other cases the decision applies prospectively.

Citations and references

• Board of County Commissioners of Leavenworth County v. McGraw Fertilizer Service, Inc. and Geiger Ready-Mix Co., Inc. — the Kansas Supreme Court decision (March 1997 holding; July 11, 1997 order on reconsideration) that sales tax is never part of the "retail cost when new" of commercial and industrial personal property and that separately charged, readily discernible freight and installation charges can be excluded; the memo names the case and does not cite a specific K.S.A. section.
• Kansas Board of Tax Appeals (BOTA) — the memo directs that "no change" orders be issued on appeals filed after March 7, 1997 so those taxpayers can have BOTA resolve whether they are entitled to relief.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: MEMO-InclusionofSalesTaxFreightInstall

Original ruling text

Memorandum

Body:

M E M O R A N D U M

TO: County Appraisers
County Clerks

FROM: Mark S. Beck
Director of Property Valuation

SUBJECT: Board of County Commissioners of Leavenworth County v. McGraw
Fertilizer Service, Inc. and Geiger Ready-Mix Co., Inc. (sales tax,
freight and installation issue)

DATE: July 30, 1997

As many of you know, the Kansas Supreme Court issued its order on the division's motion for reconsideration in the above referenced matter on July 11, 1997.

In march, the Court held that sales tax is never part of the retail cost when new of commercial and industrial personal property and that freight and installation charges may be included as part of the cost of the item, except where such costs are separately charged and are readily discernible from the item's price.

In April, the Division requested the Court reconsider its decision. The Court agreed to consider whether its decision should be applied retroactively or prospectively.

In the July 11 order, the Court held that the two litigants (McGraw and Geiger) are entitled to have sales tax, freight and installation charges removed from the retail cost when new of their commercial and industrial property for all of the years in which they protested their taxes regarding its inclusion. Also, the Court held that all taxpayers who have, as of March 7, 1997, an appeal or protest pending challenging the inclusion of sales tax, freight and installation charges are entitled to retroactive relief. To all other cases the decision is to be applied prospectively. Unfortunately, this last part of the decision is not clear. The court may mean that in all other cases, its March 7, 1997, decision applies prospectively; i.e., to tax years 1998 and forward. On the other hand, it may mean that the decision applies to the remainder of the 1997 tax year.

Many of you are holding appeals and protests on this issue. Your county should process all such appeals and protests that were filed on or before March 7, 1997, wherein the issue of including sales tax, freight and installation as part of retail cost when new was raised. Your county can remove any sales tax if it was included in the "retail cost when new" that was used as a basis of valuation. Also, you should remove freight and installation where such costs are separately charged and where such costs are readily discernible from the sales price of the item.

In addition, many of you have appeals and protests which were filed after March 7, 1997. As stated above, it is unclear whether appeals filed after March 7, 1997, are entitled to relief for the sales tax, freight and installation issue pursuant to the recent Kansas Supreme Court decision. Therefore, the division recommends that "no charge" orders be issued in these cases to allow the taxpayer to appeal to the Kansas Board of Tax Appeals (BOTA) for a resolution of the issue. If you choose instead to grant relief in these instances, your county may find itself in a position later of having to issue an added tax bill if BOTA decides that relief is not merited. On the r hand, a "no change" order may eventually require a county to refund taxes if BOTA decides that relief is warranted.

Several appeals have already been docketed at BOTA, some of which were originally filed after March 7, 1997. Obviously, BOTA will have to decide whether relief should be granted under these instances. It would be inappropriate and futile for the division to decide this particular matter. After BOTA decides the issue, we will inform counties of the decision so that you will know how to best handle the 1997 protests which can be expected after tax statements are mailed this fall.

Date Composed: 10/06/1997 Date Modified: 10/09/2001

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