Which truck-rental invoice charges were subject to Kansas sales tax and the 3.5% vehicle rental excise tax?

Plain-English summary

A truck-rental company asked how Kansas retailers' sales tax and the motor-vehicle rental excise tax applied to its invoices.

K.S.A. 79-5117(a) imposed a 3.5% excise tax, in addition to state and local sales tax, on gross receipts from motor-vehicle rentals lasting no more than 28 days. The applicable local sales-tax rate was the rate at the rental business location under the letter.

Both taxes used the same gross-receipts base. K.A.R. 92-19-55a(b)(3) included insurance, damage waivers, property taxes, maintenance, service, repair, pickup, delivery, handling, administrative and late fees, fuel, and other expenses in each lease payment regardless of separate billing or separate contracts.

The Department therefore included the company's fuel charges, personal-liability insurance, damage waivers, permit charges, post-use cleaning, and IFTA charges in both tax bases. The 3.5% excise tax was not itself subject to sales tax if separately stated; if absorbed into the rental price, it became part of the sales-tax base.

The excise tax applied only to motor vehicles. Separately stated rentals of dollies and pads bore state and local sales tax but not the vehicle rental excise tax.

What this means for you

Truck-rental companies

Apply both taxes to the full short-term vehicle-rental charge and included fees. Separately state the excise tax itself.

Billing-system teams

Do not exclude separately listed fuel, waivers, permits, cleaning, or handling charges from the truck-rental tax base.

Equipment renters

Nonvehicle items such as separately stated dollies and pads received sales-tax treatment without the vehicle excise tax.

Common questions

Q: What rentals were subject to the 3.5% excise tax?
A: Motor-vehicle rentals lasting no more than 28 days.

Q: Did separately stated fees escape tax?
A: No. The listed ancillary charges remained in the gross-receipts base.

Q: Was the excise tax itself subject to sales tax?
A: Not when separately stated; an absorbed or unidentified amount was taxable.

Q: Were dollies and pads subject to the excise tax?
A: No if separately stated, though state and local sales tax still applied.

Citations and references

• K.S.A. 79-5117(a) — 3.5% short-term vehicle rental excise tax
• K.S.A. 79-5101 — related property-tax treatment cited by the Department
• K.A.R. 92-19-55a(b)(3) — total taxable lease payment
• Notice, Motor Vehicle Rental Companies (May 24, 1991) — same-base and separate-statement guidance quoted in the opinion

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2002-016

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

August 19, 2002

XXXX
XXXX
XXXX

RE: Your letter of June 4, 2002

Dear XXXX:

Thank you for your recent letter on truck rentals. You ask a series of questions about how sales tax and the vehicle rental excise tax apply to a truck rental company's billings. The vehicle rental excise tax imposition is found at K.S.A. 79-5117(a):

(a) In addition to the tax imposed pursuant to the Kansas retailers' sales tax act, there is hereby imposed an excise tax at the rate of 3 1/2% upon the gross receipts received from the rental or lease for a period of time not exceeding 28 days of motor vehicles which except for the operation of K.S.A. 79-5101, and amendments thereto, would be subject to taxation pursuant to K.S.A. 79-5101 et seq., and amendments thereto.

K.S.A. 79-5101 excludes vehicles that are subject to tax under K.S.A. 79-5117(a) from property tax. However, the 3.5% tax is figured on the same tax base as sales tax and is in addition to the state and local tax rates that the rental agency should be charging on its vehicle rentals. The local sales tax that should be charged is the local tax that is in place at the location of the business.

Both the retailers' sales tax and the motor vehicle excise tax are levied on "gross receipts." This means that the tax base for sales tax and the tax base for vehicle excise tax are identical. This was discussed in the original notice issued in 1991 to implement the law:

The vehicle rental excise tax is imposed on the same tax base as the Kansas retailers' sales tax. Accordingly, the tax should be calculated on the total amount of the rental fee with no deduction or exclusion from the fee for insurance, taxes, service or maintenance contracts, handling charges, administrative charges, late fees, repair service charges or any other charges. For the excise tax to be exempt from Kansas retailers' sales tax, the vehicle rental excise tax must be separately stated on the invoice, sales ticket or billing document. Vehicle rental excise taxes that are absorbed or included in the retailer's selling price and not separately identified on the billing document will be subject to the Kansas retailers' sales tax. Notice, Motor Vehicle Rental Companies, May 24, 1991.

The vehicle excise tax is imposed by adding the 3.5% tax rate to the rate that is in effect for state and local sales tax. Please note that the motor vehicle excise tax is imposed only on vehicle rentals. It does not apply to rentals of other tangible personal property. These rentals are only subject to state and local sales tax.

As noted the tax base for both taxes is identical. The state sales tax base for rentals is discussed in K.A.R. 92-19-55a(b)(3):

(3) Computation of the tax. Sales tax shall be computed on the total amount of each lease payment charged to the lessee without any allowance for insurance, damage waiver fees, property taxes, maintenance, service, repair, pickup, delivery, and other handling charges, administrative charges, late fees, fuel charges, or other charges or expenses whether paid by the lessor or lessee. Any such charges or expenses shall be considered to be part of each lease payment regardless of whether the charges are segregated on the same bill or whether separate contracts are entered into for the lease or rental of the property and for the payment of these charges or expenses. Any payment for the cancellation of the lease shall be taxable as part of the final lease payment under the lease contract.

Under this regulation, the tax base for both taxes include any charges by a rental company for fuel, personal liability insurance, damage waiver fees, permit charges, post-use cleaning, and IFTA charges, since the IFTA charges are part of the fuel cost. This regulation provides the answer to all or part of your numbered questions, one through eight.

Your other questions concerns rentals of dollies and pads. As noted, these charges are subject to Kansas state and local sales tax act, but not to the vehicle rental excise tax. Accordingly, only state and local sale tax is due on these charges if they are separately stated as line items on the billing. As discussed, state and local sales tax and the motor vehicle excise tax is due on the rental charges for the trucks.

I believe that, as discussed, K.A.R. 92-19-55a(b)(3) answers all of your questions. If you have any additional questions, please call me at 785-296-3081.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 08/26/2002 Date Modified: 08/26/2002

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