When was federal excise tax excluded from the Kansas sales-tax base?

Plain-English summary

Kansas Notice 91-02 distinguishes transactions where federal excise tax was imposed on the consumer from short-term rentals where it was imposed on the retailer.

When separately stated on the invoice, federal excise tax was excluded from Kansas taxable gross receipts for sales of passenger vehicles, heavy trucks and trailers, boats, aircraft, jewelry, and furs.

The exclusion also applied to:

• Passenger-vehicle leases lasting more than one year.
• Boat and aircraft leases regardless of duration.

For a passenger-vehicle lease of less than one year, the federal excise tax was part of the rental agency's cost. It therefore remained in the gross receipts subject to Kansas sales tax, along with financing charges associated with that federal tax, even if separately billed.

What this means for you

A retailer or lessor needed to identify who legally bore the federal excise tax and separately state an excludable tax. Short-term passenger-vehicle rental companies could not remove their federal excise cost from the Kansas lease-payment tax base.

Common questions

Q: Did separately stating federal excise tax always remove it from the Kansas base?
A: No. It did not remove the retailer-borne tax from short-term passenger-vehicle rentals.

Q: What counted as a short-term passenger-vehicle lease?
A: Less than one year under this notice.

Q: Did the rule apply to aircraft leases?
A: Yes. Separately stated federal excise tax was excluded regardless of the aircraft lease's duration.

Citations and references

• K.S.A. 79-3603(a) and 79-3602(h).
• I.R.C. 4001 et seq., 4011, and 4052.
• K.A.R. 92-19-55(f).

Subject

Federal Excise Tax

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 91-02

Original ruling text

Notice
Notice Number: 91-02
Tax Type: Kansas Retailers’ Sales Tax
Brief Description: Federal Excise Tax
Keywords:
Effective Date: 07/01/1991

Body:
NOTICE #91-2

TO: All Retailers' Registered to Collect Kansas Retailers' Sales Tax

FROM: KANSAS DEPARTMENT OF REVENUE

RE: Retail Sales involving the Federal Excise Tax.

The Kansas Department of Revenue has been asked whether the federal excise tax, as provided for in the Internal Revenue Code,
Section 4001 et seq, should be part of the gross receipts subject to Kansas Retailers' Sales tax.

KSA 79-3603(a) imposes a, "tax at the rate of 4.25% upon the gross receipts received from the sale of tangible personal property at
retail within this state."

KSA 79-3602(h) defines "Gross receipts" as the, "total selling price or the amount received as defined in this act, in money, credits,
property or other consideration valued in money from sales at retail within this state".

Internal Revenue Code, Section 4001 et seq, imposes a federal excise tax on the sale of passenger vehicles, heavy trucks and trailers,
boats, aircraft, jewelry, furs.

The Kansas Department of Revenue has determined that the federal excise tax imposed on the sale of passenger vehicles, heavy
trucks and trailers, boats, aircraft, jewelry, and furs should not be included in the gross receipts subject to Kansas Retailers' Sales tax,
provided the tax is separately stated on the billing or invoice.

This determination applies to all leases of passenger vehicles over one year in duration, and to all leases of boats and aircraft (IRC
Sec 4011) regardless of the duration of the lease.

In cases of short term leases of passenger vehicles (less than one year), the federal excise tax shall be included in the gross receipts
of the rental charge subject to the Kansas Retailers' Sales tax. The rational for this position is that the Rental Agency is considered to
have made the first retail purchase upon which the federal excise tax is imposed, [IRC 4011(c)(1) & IRC 4011(c)(2)(B)(ii) and IRC
4052(f)]. Therefore, in cases of short term leases of passenger vehicles, the federal excise tax is on the retailer and not on the
consumer. Kansas Administrative Regulation 92-19-55(f) is applicable to "taxes" on the retailer:

KAR 92-19-55(f) "Sales tax shall be imposed on the total amount of each lease payment which the lessee is obligated under the
contract to pay to the lessor for continued use of the tangible personal property, with no deduction or exclusion from the lease price
for insurance, taxes, service or maintenance contracts, handling charges, administration charges, late fees, repair or service charges,
or any other charges regardless of how any contract, invoice or other evidence of the transaction is stated or computed and whether
separately billed or segregated on the same bill.

Thus, the federal excise tax and any charges associated with the financing of the federal excise tax are to be included in the gross
receipts subject to Kansas Retailers' Sales tax in instances of short term leases of passenger vehicles.

Dated: July, 1991

Page 2

Date Composed: 10/02/1997 Date Modified: 10/10/2001

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