How does Kansas sales tax apply to 'core charges' on replacement parts?

Plain-English summary

A retailer asked how Kansas sales tax applies to "core charges" on replacement parts. The Department ruled the core charge is taxable as part of the selling price when charged, and the retailer refunds it — along with the tax collected on it — when the customer turns in the used part.

The Department described the transaction: "Replacement parts for cars, trucks and other equipment are often sold with an added fee called a 'core charge' when the customer does not have the old part to trade-in. Sometime after the sale, the customer returns to the retailer, turns in the used part, and is refunded the core charge. The retailer then forwards the used part to a re-manufacturer to be rebuilt."

Its holding treats the core charge as a trade-in: "Kansas treats these transactions basically as the trade-in of a used part. The retailer, at the time of sale, cannot determine whether the customer will turn in the used part for the refund. Thus, the core charge is subject to sales tax as part of the selling price. When the part is turned in, the retailer should refund both the core charge and the state and local sales tax that was collected on the core charge." The Department said this "is consistent with Kansas law that allows a credit when the selling price is established for 'an amount equal to the allowance given for the trade-in of property.' K.S.A. 79-3602(h)."

What this means for you

Parts retailers charging core charges

Collect sales tax on the core charge at the time of sale, because it is part of the selling price and you cannot yet know whether the customer will bring back the old core. Treat it like any other taxable amount on the invoice.

When the customer returns the core

Refund both the core charge and the state and local sales tax you collected on it. The refund mirrors a trade-in credit, so the customer ends up paying tax only on the net amount they actually kept.

Keep records of the refunds

Because you are refunding tax you already collected and reported, keep documentation tying each core-charge refund to the original sale so your tax accounting stays clean.

Common questions

Q: Do I charge Kansas sales tax on a core charge?
A: Yes. At the time of sale the core charge is part of the selling price and is subject to state and local sales tax.

Q: What happens when the customer returns the used core?
A: You refund both the core charge and the sales tax that was collected on it, treating the return like a trade-in.

Q: Why is it treated as a trade-in?
A: Because Kansas law (K.S.A. 79-3602(h)) allows a credit against the selling price equal to the allowance given for a trade-in of property, and returning the used core is essentially trading it in.

Citations and references

• K.S.A. 79-3602(h) — allows a credit in establishing the selling price "for an amount equal to the allowance given for the trade-in of property." The Department relied on it to treat the returned core as a trade-in, so the retailer refunds both the core charge and the tax collected on it.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2000-024

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

October 10, 2000

XXXX
XXXX
XXXX

RE: Your letter of August 8, 2000

Dear XXXX:

I have been asked to answer your letter that we received in August. You ask how Kansas sales tax applies to “core charges.”

Replacement parts for cars, trucks and other equipment are often sold with an added fee called a “core charge” when the customer does not have the old part to trade-in. Sometime after the sale, the customer returns to the retailer, turns in the used part, and is refunded the core charge. The retailer then forwards the used part to a re-manufacturer to be rebuilt.

Kansas treats these transactions basically as the trade-in of a used part. The retailer, at the time of sale, cannot determine whether the customer will turn in the used part for the refund. Thus, the core charge is subject to sales tax as part of the selling price. When the part is turned in, the retailer should refund both the core charge and the state and local sales tax that was collected on the core charge. This practice is consistent with Kansas law that allows a credit when the selling price is established for “an amount equal to the allowance given for the trade-in of property.” K.S.A. 79-3602(h).

This rule applies to transactions described in your catalog. I believe this answers all of your questions. If you need to discuss this matter further, please call me.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 10/18/2000 Date Modified: 10/10/2001

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