Are separately stated delivery charges subject to Kansas sales tax?

Plain-English summary

Kansas Notice 23-02 explains a change in how delivery charges are treated for Kansas sales tax. Under 2022 House Bill 2136 (Section 17), the definition of "sales or selling price" in K.S.A. 79-3602(ll) was amended so that:

• Before July 1, 2023: delivery charges were included in the sales or selling price and were part of the taxable gross receipts -- so they were subject to sales tax.
• On and after July 1, 2023: delivery charges that are separately stated on the invoice, bill of sale, or similar document given to the purchaser are not included in the sales or selling price, and so are not subject to Kansas state or local sales tax.

What counts as a "delivery charge." K.S.A. 79-3602(i) defines delivery charges as the seller's charges for preparation and delivery to a location the purchaser designates -- including transportation, shipping, postage, handling, crating, and packing.

How to qualify for the exclusion. Because exclusions from the tax base are narrowly construed (Kansas courts treat taxation as the rule and exemption as the exception), a separately stated charge must be clearly denominated as a charge for (1) delivery, (2) transmission, or (3) transportation. Charges not clearly labeled that way stay in the tax base. The charge must also be representative of a true or reasonable cost of delivery, whether the retailer delivers directly or uses a third party. Delivery charge does not include the seller's cost of transportation to itself ("freight-in"), fuel surcharges, or charge-backs for delivery on returned goods.

It's optional. The statute does not require a retailer to separately state delivery charges. If they are not separately stated, they are included in the selling price and taxed, and a retailer may keep its current billing practices. The Department declines to advise on billing issues not directly related to sales tax.

Recordkeeping. Retailers must keep records of delivery costs and charges, available for inspection by the Director of Taxation during normal business hours; a detailed, itemized list may be required for each delivery.

What this means for you

Retailers and service providers

• Starting July 1, 2023, you can exclude delivery charges from sales tax if you separately state them on the invoice and clearly label them as delivery, transmission, or transportation.
• The separately stated charge must reflect a true or reasonable delivery cost -- don't fold in freight-in, fuel surcharges, or return charge-backs.
• You are not required to break out delivery charges; if you don't, they stay taxable and you can keep your current billing practices.
• The change applies to both state and local sales tax (including special district taxes such as CID, TDD, and STAR bond districts).

Purchasers

• On invoices dated on or after July 1, 2023, a clearly separated delivery charge should not carry Kansas sales tax; a bundled or unlabeled charge remains taxable.

Common questions

Are delivery charges taxable in Kansas? Not if they are separately stated on the invoice and clearly labeled as delivery, transmission, or transportation, for sales on or after July 1, 2023. Otherwise they remain part of the taxable price.

Does this apply to local sales tax too? Yes -- the change affects both state and local sales taxes, including special jurisdiction taxes.

What is not a "delivery charge"? Freight-in (the seller's cost of getting the goods), fuel surcharges, and charge-backs for delivery on returned goods.

Do I have to separately state delivery charges? No. It is optional; if you don't, the charge is taxed as part of the selling price.

Citations and references

• House Bill 2136 (2022), Section 17 -- amended the definition of "sales or selling price."
• K.S.A. 79-3602 -- Kansas sales tax definitions; subsection (ll) excludes separately stated delivery charges from the selling price on and after July 1, 2023, and subsection (i) defines the term delivery charges.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 23-02

Original ruling text

Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.gov
Mark A. Burghart, Secretary Laura Kelly, Governor

                                        NOTICE 23-02

                          DELIVERY FEES CHARGED BY A RETAILER

                                       (JUNE 22, 2023)

   During the 2022 Legislative Session House Bill 2136 was passed and signed into law.

Section 17 of the Bill amended K.S.A. 79-3602 to change the definition of "sales or selling price"
for purposes of the Kansas sales tax. Specifically, K.S.A. 79-3602(ll) was amended to provide, in
part:

         (ll) (1) "Sales or selling price" applies to the measure subject to sales tax and
   means the total amount of consideration, including cash, credit, property and services,
   for which personal property or services are sold, leased or rented, valued in money,
   whether received in money or otherwise, without any deduction for the following:
         (A) The seller's cost of the property sold;
         (B) the cost of materials used, labor or service cost, interest, losses, all costs of
   transportation to the seller, all taxes imposed on the seller and any other expense of the
   seller;
         (C) charges by the seller for any services necessary to complete the sale, other
   than delivery and installation charges;
         (D) (i) prior to July 1, 2023, delivery charges; and
         (ii) on and after July 1, 2023, delivery charges that are not separately stated on
   the invoice, bill of sale or similar document given to the purchaser; and
         (E) installation charges.

   Prior to the amendment, delivery charges were included in the sales or selling price charged

to a customer as part of the gross receipts from the sale of tangible personal property or enumerated
services, and so were subject to Kansas sales tax. In accordance with the amendment, on and after
July 1, 2023, delivery charges that are separately stated on the invoice, bill of sale, or similar
document provided to a purchaser are not included in the sales or selling price charged to the
customer, are not part of the gross receipts from the sale of tangible personal property or
enumerated services, and so are not subject to Kansas sales tax.

  The term "delivery charges" is defined in K.S.A. 79-3602(i). The subsection provides as

follows:

         (i) "Delivery charges" means charges by the seller of personal property or
   services for preparation and delivery to a location designated by the purchaser of
   personal property or services including, but not limited to, transportation, shipping,
   postage, handling, crating and packing. Delivery charges shall not include charges for
   delivery of direct mail if the charges are separately stated on an invoice or similar
   billing document given to the purchaser.

  Like exemptions from the sales tax, exclusions from the sales tax base are narrowly

construed. Kansas courts have clearly stated taxation is the rule and exemption the exception.
Accordingly, to qualify for the exclusion from the sales tax base, delivery charges that are
separately stated on the invoice, bill of sale, or similar document provided to a purchaser must be
clearly denominated as charges for: (1) delivery; (2) transmission; or (3) transportation. Charges
that are not clearly so denominated on the invoice, bill of sale, or similar document provided to a
purchaser will be included in the tax base as part of the gross receipts from the sale.

   It is important to note any separately stated charges must be representative of a true or

reasonable cost of delivery based upon the underlying products or services sold and provided by
either the retailer or service provider directly, or by a third party or agent (ex. a package delivery
company) used by the retailer or service provider. Records regarding delivery costs and charges
must be retained by the retailer and, pursuant to Kansas law, must be available for, and are subject
to, inspection by the Director of Taxation or authorized representative at all times during normal
business hours. Depending upon the amount of the delivery charges relative to the sales price of
the item sold, a detailed, itemized list of all the charges may be required for each delivery. Delivery
charge does not include the cost of transportation to the seller (typically called "freight-in"), fuel
surcharges, or charge-back for delivery charge on returned goods.

  In some instances, there is a clear line of demarcation between the cost of the product being

sold and the delivery charges associated with the sale. For example, the sale of a large item by a
"big box" store which can be transported by the purchaser at the time of sale or, for an additional
fee, be delivered to the purchaser by the store later. In other cases, such as when services are being
sold, the line between the cost of the product and the delivery charges associated with the sale may
be more difficult to determine. In either case, if the delivery charges are not to be included in the
sales or selling price, the delivery charges must be clearly and separately stated on the invoice, bill
of sale, or similar document provided to the purchaser.

  The decision of how to prepare and issue a billing statement to a customer is up to the retailer.

K.S.A. 79-3602(ll)(1)(D)(ii) does not mandate that delivery charges be separately stated on the
invoice, bill of sale or similar document given to the purchaser. If delivery charges are not
separately stated they will be included in the sales or selling price, and so will be subject to sales
tax, but retailers that do not break out delivery fees will not be obligated to do so and, instead, for
sales tax purposes will be able to maintain current business practices for the foreseeable future.
The Department of Revenue declines to opine or give advice regarding billing issues that are not
directly related to sales tax.

  The change in treatment of delivery charges will affect both the state sales tax and local sales

taxes imposed by cities, counties, and political subdivisions (along with special jurisdictions within
the cities, counties, and political subdivisions, community improvement districts,
transportation development districts, and STAR bond project districts). After July 1, 2023,
these delivery charges, if separately stated on the invoice, bill of sale, or similar document
provided to a purchaser, will not be included in the sales or selling price and, therefore, will not
be subject to state and local sales tax.

                               TAXPAYER ASSISTANCE

 Additional copies of this notice, forms or publications are available from our web site,

www.ksrevenue.gov. If you have questions about this Notice, please contact:

                            Taxpayer Assistance Center
                           Kansas Department of Revenue
                           Scott Office Building, 1st Floor
                                  120 SE 10th Ave
                                   P. O. Box 3506
                              Topeka, KS 66601-3506
                                Phone: 785-368-8222
                                 Fax: 785-291-3614