Does Kansas sales tax apply to a utility late-payment charge, and how do prompt-payment discounts affect the taxable amount?

Plain-English summary

The Department clarified for Kansas gas, water, electrical, and heating public utilities how sales tax applies to late-payment charges.

Effective July 1, 1971, when a customer pays an additional amount for failing to pay within a prescribed period for a taxable sale of gas, water, electricity, or heat, sales tax applies to that additional amount.

The broader principle: the tax is due on all payments, whether in the form of a minimum charge, a flat rate, or otherwise. So whether a discount is deductible for paying early (within a prescribed period), or an additional amount is added for paying late, the tax attaches to the amount actually paid under either condition.

What this means for you

For a utility, the taxable base was the amount the customer actually paid. If a customer paid late and owed a penalty, the penalty was part of the taxable charge. If a customer paid early and took a prompt-payment discount, the tax applied to the discounted amount actually paid. The tax simply followed the real amount collected.

Common questions

Q: Is a utility late-payment charge subject to Kansas sales tax?
A: Yes — effective July 1, 1971, sales tax applies to the additional amount charged for failure to pay within the prescribed period, on taxable sales of gas, water, electricity, or heat.

Q: What if the customer takes a prompt-payment discount?
A: The tax attaches to the amount actually paid, so it applies to the discounted amount.

Q: Does the form of the charge matter?
A: No. The tax is due on all payments, whether a minimum charge, a flat rate, or otherwise.

Citations and references

• The notice states the rule effective July 1, 1971, that sales tax attaches to the amount actually paid, including late-payment charges on taxable utility sales; it cites no specific statute section.

Subject

Applicability of Sales Tax on Utility Late Charges

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 71-0802

Original ruling text

Notice
Notice Number: Gas, Water, Electrical and Heating Utility
Tax Type: Kansas Retailers' Sales Tax
Brief Description: Applicability of Sales Tax on Late Charges
Keywords:
Effective Date: 08/02/1971

Body:
August 2, 1971

TO: All Kansas Gas, Water, Electrical
and Heating Public Utilities:

This announcement is a supplement to clarify the information previously mailed to you relative to the tax treatment of payments
made by consumers and uses to your company.

Effective July 1, 1971 where an additional amount is paid for failure to make payment within a prescribed period for the taxable sale
of gas, water, electricity, or heat, sales tax applies to such additional amount.

In other words, the tax is due on all payments whether in the form of a minimum charge, a flat rate or otherwise. Accordingly, where
a discount is deductible from the gross utility charge if payment therefore is made within a prescribed period or where an additional
amount is added for failure to make payment within a prescribed period, the tax attaches to the amount actually paid under either
condition.

Sincerely yours,

JAMES T. McDONALD
Director of Revenue

Date Composed: 10/07/1997 Date Modified: 10/10/2001

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