Is the federal excise tax part of the Kansas sales tax base on retail sales and leases?

Plain-English summary

This notice answers whether the federal excise tax (FET) belongs in the Kansas sales tax base. FET under IRC Section 4001 et seq. falls on sales of passenger vehicles, heavy trucks and trailers, boats, aircraft, jewelry, and furs.

• Retail sales: FET is excluded from gross receipts (K.S.A. 79-3603(a)/(h)) if separately stated on the invoice.
• Long leases: the exclusion also applies to passenger-vehicle leases over one year and to all boat and aircraft leases (any duration).
• Short leases: for short-term (under one year) passenger-vehicle leases and all leases of furs, jewelry, aircraft, heavy trucks, and trailers, the FET IS included in the taxable rental charge. The rationale: the rental agency is the first retail purchaser on which the FET is imposed (IRC 4011, 4052(f)), so the tax is on the retailer, and K.A.R. 92-19-55(f) allows no deduction from the lease tax base for taxes or other charges.

So the FET (and charges to finance it) are part of Kansas gross receipts on those short-term and specified leases. The notice states the sales tax rate as 4.25%, the rate in effect when it was issued; the current statutory rate is higher.

What this means for you

If you sell or lease vehicles, boats, aircraft, jewelry, or furs in Kansas, whether you charge Kansas sales tax on the federal excise tax depends on the transaction: exclude it (if separately stated) on outright sales, long vehicle leases, and boat/aircraft leases; include it on short vehicle leases and on all fur, jewelry, aircraft, heavy-truck, and trailer leases, where the leasing company is treated as the party owing the FET.

Common questions

Q: Is the federal excise tax subject to Kansas sales tax on a car purchase?
A: No, provided it is separately stated on the invoice; the FET is excluded from gross receipts on the retail sale.

Q: Why is the federal excise tax taxed on a short-term car lease?
A: Because the rental agency is treated as the first retail purchaser on which the FET is imposed, so the tax is on the retailer, and K.A.R. 92-19-55(f) allows no deduction of it from the lease tax base.

Citations and references

• K.S.A. 79-3603(a) (sales tax on gross receipts; stated at 4.25% when issued)
• K.S.A. 79-3602(h) (definition of gross receipts)
• Internal Revenue Code Section 4001 et seq. (federal excise tax)
• Internal Revenue Code Sections 4011, 4052(f) (lessor as first retail purchaser)
• K.A.R. 92-19-55(f) (no deduction from the lease tax base)

Subject

Retail Sales Involving Federal Excise Tax

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 97-1006

Original ruling text

Notice
Notice Number: Retail Sales Involving Federal Excise Tax
Tax Type: Kansas Retailers' Sales Tax
Brief Description: Federal Excise Tax Taxability
Keywords:

Body:
NOTICE

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 or not 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 hereby directs that the Federal Excise tax imposed on the sale of passenger vehicles, heavy
trucks and trailers, boats, aircraft, jewelry, furs, should not be included in the gross receipts subject to Kansas Retailers' Sales tax.
The federal Excise tax shall be separately stated on the billing or invoice if it is to be excluded from the sales tax base.

The above rule should apply 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 on boats and aircraft.

In cases of short term leases of passenger vehicles (less than one year), and all leases of furs, jewelry, aircraft, heavy trucks and
trailers, the federal excise tax should be included in the gross receipts of the rental charge subject to the Kansas Retailers' Sales tax.
The rationale 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, and all leases of furs, jewelry, aircraft, heavy trucks and trailers, 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, and all leases of furs, jewelry,
aircraft, heavy trucks and trailers.

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

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