Does an out-of-state publisher have Kansas use tax nexus because of a joint venture with a Kansas law firm?

Plain-English summary

A business asked whether a Tennessee publisher has nexus with Kansas — a connection sufficient to require it to collect Kansas compensating (use) tax. The publisher had entered an agreement with a Kansas law firm to publish a monthly employment-law newsletter: the publisher would "provide the money necessary to launch" the newsletter, and the law firm "will have total responsibility for and control over the editorial content." Neither side was paid a set fee; instead, once the newsletter reached a positive cash flow, the two would "divide the cash flow 50 percent for your law firm and 50 percent for this company." The Department concluded the publisher does have Kansas nexus.

The Department walked through the law. K.S.A. 79-3702(h) defines a "retailer doing business in this state" to include any retailer maintaining an office or other place of business in Kansas — directly or through a subsidiary — or having "any agent or other representative operating within this state," as well as one engaging in regular or systematic solicitation of sales in the state. The regulation K.A.R. 92-20-7 interprets that statute, deeming a retailer to be doing business in Kansas when it maintains a place of business here or has "an agent, salesperson, or solicitor operating within the state under the authority of the retailer or its subsidiary," or solicits orders through advertising media.

Applying that framework, the Department found that "the Tennessee publisher and Kansas law firm are engaged in a joint venture with regard to the publication of the newsletter. As a result, the offices and activities of the law firm in the state of Kansas satisfy the physical presence requirement of both the statute and the regulation." So the publisher "does have nexus with the state of Kansas for purposes of the retailer's compensating use tax."

What this means for you

Out-of-state publishers and sellers

A physical presence you create through a Kansas partner can give you Kansas use tax nexus. If you and a Kansas business are genuinely operating a joint venture, that partner's Kansas offices and activities can be attributed to the venture — and to you — for nexus purposes.

Joint ventures generally

When two businesses share control and split the profits of a common enterprise, the in-state party's presence is not just its own; it can establish the out-of-state party's connection to Kansas. Structure and substance matter: here it was the shared editorial control and 50/50 cash-flow split that made it a joint venture rather than an arm's-length vendor relationship.

Compliance

If you are found to have nexus, Kansas can require you to register and collect and remit the compensating (use) tax. Evaluate in-state relationships — agents, representatives, and joint ventures — before assuming that being headquartered out of state means no Kansas collection duty.

Common questions

Q: Why does the Tennessee publisher have Kansas nexus?
A: Because it was in a joint venture with a Kansas law firm, and the firm's Kansas offices and activities satisfy the physical-presence requirement of K.S.A. 79-3702 and K.A.R. 92-20-7.

Q: Does a Kansas partner's presence count against an out-of-state company?
A: In a genuine joint venture, yes — the in-state partner's activities are attributed to the venture, giving the out-of-state party nexus.

Q: What is the consequence of having nexus?
A: The retailer can be required to register with the Department and collect and remit Kansas compensating (use) tax.

Citations and references

• K.S.A. 79-3702 — defines "retailer doing business in this state" for the Kansas compensating (use) tax, including retailers with an in-state office, agent, or representative or engaged in systematic solicitation.
• K.A.R. 92-20-7 — the regulation interpreting that statute, deeming a retailer to be doing business in Kansas when it maintains a place of business or has an agent, salesperson, or solicitor operating in the state.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1999-15

Original ruling text

Opinion Letter

Body:

Office of Policy and Research

June 28, 1999

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Re: Kansas Compensating (Use) Tax

Dear XXXXX:

Thank you for your letter regarding whether a Tennessee business has nexus with Kansas for purposes of retailer’s compensating tax.

One document you provided is a copy of an agreement between a publisher which has agreed to “provide the money necessary to launch [a monthly newsletter on employment law]”, and a Kansas law firm which “will have total responsibility for and control over the editorial content of the monthly issues.” According to the agreement, “The venture will not pay any compensation to [the Kansas law firm] for your editorial work or to [the publisher] for our publishing expertise. But when the newsletter achieves a positive cash flow, which should occur at or shortly after the beginning of year two of publication, we will divide the cash flow 50 percent for your law firm and 50 percent for this company.”

For purposes of the Kansas compensating (use) tax, K.S.A. 79-3702 defines a “retailer doing business in this state” as follows:

(h) “Retailer doing business in this state” or any like term, means any retailer: (1) Having or maintaining within this state, directly or by a subsidiary, an office, distribution house, sales house, warehouse or other place of business, or any agent or other representative operating within this state under the authority of the retailer or its subsidiary, irrespective of whether such place of business or agent is located here permanently or temporarily, or whether such retailer or subsidiary is admitted to do business within the state; (2) engaging in regular or systematic solicitation of sales of tangible personal property in this state by the distribution of catalogs, periodicals, advertising flyers, or other advertising, by means of print, radio or television media, or by mail, telegraphy, telephone, computer data base, cable, optic, microwave or other communication system for the purpose of effecting retail sales of tangible personal property.

The statute is interpreted, in part, by K.A.R. 92-20-7. The regulation provides, in subsection (a), as follows:

(a) A retailer shall be deemed to be doing business in this state when engaged in business within this state under, but not limited to, any of the following methods of transacting business:
(1) Maintaining directly, indirectly, or through a subsidiary, an office, distribution house, sales house, warehouse or other place of business;
(2) having an agent, salesperson, or solicitor operating within the state under the authority of the retailer or its subsidiary, regardless of whether the agent, salesperson or solicitor is located in this state permanently or temporarily, or whether the retailer or subsidiary is qualified to do business within this state; or
(3) soliciting orders within this state through catalogues or other advertising media.
The director shall require an out-of-state retailer to apply for authority to collect and remit the tax.
Each retailer shall be deemed to have agents in this state even though the agents solicit sales intermittently; e.g., once a year or oftener, and regardless of the residency of the agent.

Based on the information provided in the agreement you submitted, it appears the Tennessee publisher and Kansas law firm are engaged in a joint venture with regard to the publication of the newsletter. As a result, the offices and activities of the law firm in the state of Kansas satisfy the physical presence requirement of both the statute and the regulation. Therefore, we believe the Tennessee publisher does have nexus with the state of Kansas for purposes of the retailer’s compensating use tax.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Date Composed: 07/07/1999 Date Modified: 10/10/2001

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