How did the July 1, 2002 Kansas state sales tax rate increase work, and how are transitional sales reported?

Plain-English summary

2002 Senate Bill 39, Section 6 raised the Kansas state sales and use tax rate from 4.9% to 5.3%, effective July 1, 2002, on all taxable sales of tangible personal property or services on and after that date. Local rates (set by cities and counties) were unchanged. SB39 also scheduled later decreases to 5.2% (July 1, 2004) and 5.0% (July 1, 2005) — though these scheduled reductions were later changed by subsequent law.

Transition reporting — the notice's key rules:

• Accrual-basis retailers: all sales recorded on/after July 1, 2002 use 5.3% plus local tax.
• Cash-basis retailers: sales made before July 1, 2002 but paid on/after that date were properly charged 4.9%. To avoid over-remitting at 5.3%, keep a separate record, report the receipts in Gross Sales, and take an "Other Allowable Deductions" adjustment: multiply those pre-July receipts by a percentage equal to the rate increase (.004) divided by the new combined jurisdiction rate (e.g., .004 / .072 for Topeka = 5.6%). The notice works a full example.
• Consumers' use tax: purchases on/after July 1, 2002 use 5.3%; annual filers adjust pre-July purchases by 4.9%/5.3% (0.925).
• Leases/rentals and maintenance/service contracts: billings for periods beginning on/after July 1, 2002 use 5.3% (regardless of when the agreement was signed).
• Construction contracts: taxable services are taxed when performed, so work beginning after July 1, 2002 uses 5.3% even if the bid assumed 4.9%; materials are taxed at the rate when the contractor takes delivery.
• Telephone/cable and metered nonresidential utilities: elect to prorate billings spanning July 1 or use the first/last-bill-date rules described.
• Residential/agricultural utilities: exempt from state sales tax under K.S.A. 79-3606(w), so the increase doesn't apply.
• Hotel occupancy: a one-day billing covering June 30-July 1 uses 5.3%; prorate non-daily rentals.

What this means for you

From July 1, 2002 you charged 5.3% state tax (plus local) on Kansas taxable sales. The tricky part was the changeover: if you're on the cash basis and collected 4.9% before July but got paid after, use the "Other Allowable Deductions" adjustment so you don't hand over tax you never charged. Watch the special billing rules for leases, construction, telecom, utilities, and hotels that straddle the July 1 date.

Common questions

Q: What is the new state sales tax rate?
A: 5.3% (up from 4.9%) effective July 1, 2002; local rates were unchanged.

Q: I'm cash-basis and collected 4.9% before July but got paid after. Do I owe 5.3%?
A: No. Track those receipts and take the "Other Allowable Deductions" adjustment (rate increase .004 divided by the new combined rate) so you remit only what you collected.

Q: Do leases signed before July 1 use the old rate?
A: No. Lease/rental billings for periods beginning on/after July 1, 2002 use 5.3%, regardless of when the lease began.

Q: Did the rate really drop later to 5.2% and 5.0%?
A: SB39 scheduled those decreases (2004 and 2005), but later law changed that; confirm the current rate.

Citations and references

• 2002 Senate Bill 39, Section 6 -- state sales and use tax rate increase to 5.3% (effective July 1, 2002).
• K.S.A. 79-3606(w) -- residential/agricultural utility exemption.

Subject

State Sales Tax Rate Increase (Effective July 1, 2002)

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 02-09

Original ruling text

Notice
Notice Number: 02-09
Tax Type: Kansas Retailers' Sales Tax
Brief Description: State sales tax rate increase effective 07-01-2002
Keywords:
Approval Date: 07/01/2002

Body:
Office of Policy & Research

                                                NOTICE 02-09
                                    STATE SALES TAX RATE INCREASE

Legislative background

The Kansas State Sales and Use Tax rate will increase from 4.9% to 5.3% on July 1, 2002, as provided in 2002 Senate
Bill 39, Section 6. The state rate increase will apply to all sales of tangible personal property or services that are
subject to sales or use tax on and after July 1, 2002. The local sales and use tax rates, which are fixed by cities and
counties, remain in effect as fixed by the local units of government and by the Local Retailers' Sales Tax Act.

Senate Bill 39 also provides that the state sales and use tax rate will decrease from 5.3% to 5.2% effective July 1,
2004, and then to 5% effective July 1, 2005. The department of revenue will publish a notice for each of these state
sales tax rate changes.

Reporting sales tax during the transition from 4.9% to 5.3%

1) Retailers who report on the accrual basis. Retailers using accrual basis accounting should record sales when the
earning process is complete and the amount due from the customer is measurable and legally collectable. At this time,
the sale is recorded on the retailer's books and is subject to sales tax at the current rate. Thus, all sales recorded in the
retailer's books on or after July 1, 2002 will be subject to the new 5.3% state rate, plus any applicable local sales tax.

2) Retailers who report on the cash basis. Retailers using cash basis accounting should report sales of property or
services when the cash is collected from the customer. This may occur when the property is transferred to the buyer or
the service is performed, or it may occur several weeks later. This means that some sales made before July 1, 2002
may not be reported until after July 1, 2002. In order to prevent the possibility that a retailer would have to remit state
sales tax at the rate of 5.3% on sales on which he properly charged and collected state sales tax at the rate of 4.9%, the
following procedure should be followed:

 Retailers who report sales tax on a cash basis shall keep a separate record of cash receipts billed for taxable sales
 made before July 1, 2002, where cash is received on or after July 1, 2002.

 When reporting these sales on the sales tax return, the total amount of such receipts shall be reported as part of
 the “Gross Sales” on Line 1 of the ST-16 or Column 2, Part III of the ST-36.

 Under the “Deductions” portion of the return (back of the ST-16 or Part II of the ST-36) on the line “Other
 Allowable Deductions,” the retailer should write these words: “% of taxable sales made prior to July 1, 2002.”
 The amount that is entered on this line is obtained by multiplying the gross receipts received for sales made
 before July 1, 2002, and payment received after July 1, 2002 times a percentage.

 The percentage to use is obtained by dividing the amount of the sales tax increase on July 1, 2002, i.e., .004 or
 .4% by the new combined tax rate for that jurisdiction. For example, .004 divided by .072 (new tax rate for
 Topeka) equals .056 or 5.6%.

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 Example


 A cash basis Topeka retailer makes a $100 sale on June 28, 2002, but payment is not received until July 5, 2002.
 The retailer has total gross receipt for July of $1,000. On his July sales tax return the retailer will take a
 deduction to adjust for the June sale of $100 that is taxed at the lower rate of 4.9%. The deduction under “other
 allowable deduction” is $5.60. The $5.60 deduction is calculated as follows: .004 divided by .072 = 5.6% (.056)
 times $100 equals $5.60

 On the sales tax return “Gross Sales” are $1,000 and the “Deduction” is $5.60 leaving “Net Sales” of $994.40
 times the 7.2% sales tax rate equals $71.60 for sales tax reported on the return.

 Verification: $71.60 is the same amount of sales tax due if we calculated it separately - $100 times .068 = $6.80
 sales tax and $900 times .072 = $64.80. $6.80 + $64.80 = $71.60.

Quarterly and annual sales tax filers should also maintain a separate accounting of taxable purchases made before July
1, 2002, and report the deduction for sale subject to the law rate in the same manner as the monthly filer example
shown above.

A sale of tangible personal property occurs when the customer takes title to or possession of an item. A cash-basis
retailer should charge the customer the tax in place when the item is delivered to the customer unless the contract of
sale specifically identifies and passes title to the customer at a different time. A sale of services generally takes place
when the service is performed for the customer. A cash-basis retailer should charge the customer the tax in place when
the item being repaired is delivered to the customer or when real property services are performed.

3) Reporting consumer's compensating use tax. Taxable purchases made on or after July 1, 2002 are subject to the
new state use tax rate of 5.3%. Annual consumer use tax filers should maintain a separate listing of taxable purchases
made before July 1, 2002. When reporting on an annual return that includes periods after July 1, 2002, the new higher
state sales tax rate of 5.3% should be used on the return. To accurately report state tax using the 5.3%, the sum of the
purchases made before July 1, 2002 should be adjusted by multiplying it by 4.9%/5.3% or 0.925. The resulting
product of the multiplication provides an adjusted figure for pre-July 1, 2002 purchases. This adjusted figure should
be added to the sum of the post-July 1, 2002 purchases and the total reported on the return as the amount of taxable
purchases. State tax at the rate of 5.3% should be paid on the resulting amount for the return.

4) Leases and rental of tangible personal property. Kansas treats each lease period as a separate sale. Taxable lease
and rental billings for periods that begin on or after July 1, 2002 are subject to the new state sales tax state of 5.3%,
plus any applicable local sales taxes. It is immaterial that the lease or rental agreement was entered into before July 1,
2002.

5) Maintenance and service contracts. Taxable maintenance and service contracts billing made for periods that
begin on or after July 1, 2002 are subject to new state sales tax of 5.3%, plus any applicable local sales tax. It is
immaterial that the maintenance and service contract was entered into before July 1, 2002.

6) Construction contracts. Services taxable under a construction contract are taxable when the services are
performed. This means that contractors who estimated a construction contract where work begins after July 1, 2002
will be required to remit sales tax on services at the state rate of 5.3% even though the contractor's estimate may have
assumed that the 4.9% state rate still would be in effect. Purchases of materials are taxed based on the sales tax rate in
place when the contractor takes delivery of the materials.

7) Telephone companies, television cable companies, community antennae, and other subscriber telephone,
radio and television service companies. Services provided by these companies are subject to tax at the new 5.3%
state rate on July 1, 2002. These companies shall elect to report sales tax on all accounts under one of the following
two options: (a) Billings to consumers that cover the period before and after July 1, 2002 should be prorated to reflect
the increased tax rate for those services that occurred on and after July1, 2002; or (b) Report charges for services
billed on the first billing dated on or after July 1, 2002, at the higher state rate of 5.3%, even though some services

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may be furnished before July 1, 2002. Report charges for services billed on the last bill dated before July1, 2002, at
the lower 4.9% state rate, even though some services may be furnished after July 1, 2002.

8) Utility bills for nonresidential gas, water, and electricity based on meter readings. Services provided by these
companies are subject to state tax at the new 5.3% state rate on July 1, 2002. These companies shall elect to report
sales tax on all accounts under one of the following two options: (a) Billings to consumers that cover the period before
and after July 1, 2002 should be prorated to reflect the increased tax rate for those services that occurred on and after
July 1, 2002; or (b) If a meter is read on or after July 1, 2002, and the number of days from July 1, 2002 is more than
half of the total number of days covered by the bill, report the sales of these services at the higher rate. If the number
of days is less than half the total number of days covered by the bill, report the sales of these services at the lower
state rate.

9) Utility bills for residential or agricultural use of gas, water, and electricity. State sales tax does not apply to
sales of electricity, gas, or water that is delivered through lines, pipes, or mains for noncommercial use. K.S.A. 79-
3606(w). Accordingly, the state tax increase does not apply to these billings.

10) Hotel occupancy Report taxable daily rentals for a one day billing that includes June 30th and July1st at the
higher state sales tax state rate of 5.3%. Report all taxable rentals thereafter at the higher state sales tax rate of 5.3%.
If a taxable rental is other than on a daily basis, prorate the amount of rent between the number of days taxable at the
lower rate and the number of days taxable at the higher rate.

Contacting Taxpayer Assistance. To obtain additional copies of this or any other notice please call the Kansas
Department of Revenue’s voice mail forms request line at 1-785-296-4937 or download them from our web site:
www.ksrevenue.org. Our Taxpayer Assistance Center can help you with questions about this notice. The number to
use to call the Taxpayer Assistance Center from Topeka is 368-8222. For calls placed from outside Topeka, please use
our toll free number: 1-877-526-7738. Our fax number is 1-785-291-3614. The number for the department’s hearing
impaired TTY is 1-785-296-6461.

Date Composed: 06/28/2002 Date Modified: 07/02/2002

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