Ezel / Tax Rulings / KS
KS O-2001-007 Kansas Retailers' Sales Tax 2001-01-31

Which charges by a Kansas construction-equipment rental company were taxable, and when could a contractor rental be exempt?

Short answer: Rental companies were retailers and collected sales tax on the total customer billing, including damage waivers, delivery, pickup, labor, and fuel. Rentals to contractors were taxable unless the contractor supplied a valid project exemption certificate for a qualifying project; the rental company kept the certificate and recorded its number on each exempt invoice. Equipment bought exclusively for rental could be purchased exempt. Repairs to damaged rental property could be bought for resale, but the amount rebilled to the responsible customer was taxable.

Apply this to your situation

This page answers the general question as of 2001. Ezel answers yours, under current Kansas tax law, with citations.

Currency note: this ruling is from 2001
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Kansas Department of Revenue Opinion Letter: written guidance stating the Department's interpretation of Kansas tax law on the facts presented. It is general guidance, does not have the force of law, and another taxpayer with different facts should not assume the same treatment applies; later changes in statutes, regulations, or interpretation may change the result. Kansas state and local sales and use taxes are administered centrally by the Department, so there is no self-collected home-rule city tax outside its scope. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

A prospective equipment-rental business asked how Kansas sales tax applied to rentals serving construction contractors.

Rental companies were retailers. They registered for sales tax and collected tax on rental receipts, while buying equipment exempt when it would be rented exclusively to customers.

Contractor rentals were taxable unless the contractor provided a Kansas project exemption certificate for a qualifying project, such as specified school or hospital construction. The rental company had to retain a copy and place the certificate number on each exempt billing.

The taxable rental base was the total amount billed. Damage-waiver fees, delivery, pickup, labor, and fuel were all taxable.

If damaged rental equipment went to a repair shop, the rental company could buy the repair service for resale. When it rebilled the customer who caused the damage, however, the customer charge was taxable.

What this means for you

Equipment rental companies

Collect tax on the entire rental invoice unless a valid project certificate covers the transaction.

Contractors

Ordinary contractor status does not exempt a rental. Supply project-specific documentation when eligible.

Rental accountants

Treat third-party damage repairs and the later customer rebill as a resale chain: exempt purchase with taxable rebilling under the opinion.

Common questions

Q: Are delivery and pickup charges taxable?
A: Yes. They were part of the total rental billing.

Q: Is a contractor rental automatically exempt?
A: No. A qualifying project exemption certificate was required.

Q: May rental inventory be bought exempt?
A: Yes when the equipment is purchased exclusively for rental to others.

Q: Are customer damage charges taxable?
A: Yes when the rental company rebills the customer.

Citations and references

  • Kansas project exemption certificate — project-specific documentation described by the Department; no section number cited

Source

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

January 31, 2001

XXXX
XXXX
XXXX

RE: Your letter dated January 5, 2001

Dear XXXX:

I have been asked to answer your letter that we received earlier this month. In it you state that you intend to open an equipment rental company to service the construction industry. You ask if certain customer charges should be taxed.

In Kansas, rental companies are considered to be retailers. Rental companies must register as retailers and collect sales tax on their rental charges. Such companies may claim sales tax exemption when they buy the equipment that they will rent exclusively to others.

Rentals to contractors are taxable rentals unless the contractor can provide the rental company with a project exemption certificate. A project exemption certificate is a special kind of exemption certificate that is issued by the State of Kansas to certain qualifying entities, such as schools and hospitals. A project exemption is of limited duration and is intended to allow contractors who do work for the entity to purchase materials exempt from sales tax. This exemption scheme is intended to reduce construction costs for a given construction project, such as a new school or addition to a hospital. A rental company that honors a project exemption certificate must maintain a copy of the certificate and record the certificate number on each billing in lieu of sales tax.

Under Kansas law, the tax base for rental charges is the total amount billed to the customer for the rental. This means that a rental company’s charges to a customer for: (1) damage waiver fees, (2) delivery, (3) pick-up, (4) labor, and (5) fuel are subject to Kansas sales tax. You should be aware that if the rental company takes damage rental property to a repair shop, the rental company may claim exemption for resale. However, when the rental company re-bills the customer who damaged the property, sales tax must be billed on the customer charge.

I believe that I have answered all of your questions. If you have any additional questions, please visit our web sit at www.ink.org/public/kdor/ or call me at (785) 296-3081.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 02/01/2001 Date Modified: 10/10/2001

Table 1

Letter Number: O-2001-007

Table 2

Tax Type: Kansas Retailers' Sales Tax
Brief Description: Equipment rental company servicing the construction industry.
Keywords:
Approval Date: 01/31/2001

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