Are labor charges for repairing the roof of a commercial building subject to Kansas sales tax?

Plain-English summary

A correspondent asked whether roof-repair services on a commercial building were subject to Kansas sales tax. The Department answered yes.

K.S.A. 79-3603(p) taxed installation, application, repair, service, alteration, and maintenance of tangible property whether the item remained personal property or became part of real estate. A building was made from materials that had been tangible personal property, so repair services to the building were taxable.

Roof work involved both installing new roofing materials and repairing existing materials, bringing it within K.S.A. 79-3603(p) and (q). The residential repair and remodeling exemption enacted in 1998 did not extend to commercial buildings.

Labor could still be exempt if the project qualified as original construction. The letter listed initial building construction, an exterior room or floor addition, specified utility or industrial original construction, adjoining land improvements performed with that project, and reconstruction of a qualifying structure damaged or destroyed by fire, flood, tornado, lightning, explosion, or earthquake.

The contractor's purchases of materials remained taxable whether its labor services were taxable or exempt.

What this means for you

Commercial roofing contractors

Collect Kansas sales tax on commercial roof-repair labor unless the job qualifies for a specific original-construction exception.

Building owners

Do not apply the residential repair exemption to a commercial property.

Contractor accountants

Analyze labor and materials separately. An exempt original-construction labor charge did not exempt the contractor's material purchases under this opinion.

Common questions

Q: Is commercial roof-repair labor taxable?
A: Yes. It includes taxable installation and repair services.

Q: Does the residential repair exemption apply?
A: No. The letter says it does not extend to commercial buildings.

Q: Can disaster reconstruction qualify as original construction?
A: Yes for the listed fire, flood, tornado, lightning, explosion, or earthquake damage.

Q: Are contractor materials exempt when labor is exempt?
A: No. Material purchases remained taxable.

Citations and references

• K.S.A. 79-3603(p) and (q) — installation and repair services involving property incorporated into real estate
• 1977 S.B. 49 — contractor labor-tax provisions discussed by the Department
• 1998 S.B. 493 — residential repair and remodeling exemption discussed in the letter

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2003-003

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

March 11, 2003

XXXX
XXXX
XXXX

RE: Your e-mail dated March 6, 2003

Dear XXXX:

Thank you for your recent e-mail. You ask if roof repair services performed on a commercial building are subject to Kansas sales tax. Please be advised that these services are taxable.

Since 1977, Kansas has imposed sales tax on labor services that a contractor performs on certain real property. See 1977 Senate Bill 49. Taxable services included "installation," "application," "repairing," "servicing," "altering," and "maintaining" tangible personal property "regardless of whether or not such tangible personal property when installed or applied remains tangible personal property or becomes a part of real estate." K.S.A. 79-3603(p). This statutory language means that repair services, as well as the other listed services, are taxable when performed on buildings and on other real property structures. Thus, roof repair services are taxable under K.S.A. 79-3603(p) and K.S.A. 79-3603(q), since these services require installing new roofing materials as well as repairing existing materials.

In 1998, the Kansas legislature exempted residential repair and remodeling services. See 1998 Senate Bill 493. This new exemption does not extend to commercial buildings. Consequently, contractors who repair or remodel commercial buildings in Kansas are required to collect sales tax on their services.

In addition to residential work, sales tax does not apply when a project qualifies for the original construction exception. This exception covers work that involves: (1) the first or initial construction of a building; (2) the addition of a room or floor to the exterior of an existing building; or (3) the first or initial construction of a mill, plant, refinery, oil or gas well, feedlot, or water, gas, or electric distribution line owned by a municipal utility or a qualifying electric cooperative. An improvement done to land that abuts a qualifying project is also exempt when the work is done as part of the original construction project. By definition, a project qualifies as original construction when it calls for the repair of an existing building or other qualifying structure that was damaged or destroyed by fire, flood, tornado, lightning, explosion, or earthquake.

Sales of materials to contractors continue to be taxable regardless of whether the services are taxable or exempt from tax.

I believe that I have answered all of your questions. If you need additional assistance, please call me at 785-296-3081.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 03/31/2003 Date Modified: 03/31/2003

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