Are charges for criminal background-check services subject to Kansas retailers' sales tax?

Plain-English summary

A business performed criminal background checks for clients across the United States. It sometimes bought the same service from another company and rebilled its client. That supplier planned to begin charging Kansas sales tax unless the business could provide written proof that the service was nontaxable.

The Department said Kansas did not tax the background-check service. The Kansas retailers' sales tax act taxed tangible personal property and only those services specifically enumerated in the act. Criminal background checks were not on that list.

Accordingly, the business's payment to the outside background-check provider was not subject to Kansas sales tax under the law discussed in the opinion.

What this means for you

Background-check providers

The service described was nontaxable because it was not an enumerated Kansas service. Keep the transaction limited to the service addressed in the letter.

Businesses purchasing checks

A supplier's decision to bill another background-check provider did not change the Department's conclusion that the service was nontaxable.

Accountants

The opinion applies the enumerated-services rule. It does not analyze any product or service beyond the criminal background checks described.

Common questions

Q: Are criminal background checks taxable in Kansas?
A: No under this opinion. They were not an enumerated taxable service.

Q: Does it matter that one provider buys the check and rebills a client?
A: The Department still treated the payment for the background-check service as nontaxable.

Q: Did the Department identify a specific exemption statute?
A: No. Its conclusion rested on the service not being among the taxable services enumerated in the act.

Citations and references

• Kansas retailers' sales tax act — enumerated-services rule described in the letter; no section number cited

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2005-005

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

October 11, 2005

XXXXX
XXXXX
XXXXX

RE: Your fax received on September 29, 2005

Dear XXXXX:

Thank you for your recent inquiry. You conduct criminal background checks for businesses across the United States. Occasionally, you use a company that provides this service for a fee. The company bills you and you, in turn, bill your client.

You recently received a letter from the company stating that it will begin charging you sales tax for their services unless you provide them with written proof that their services are not taxed in Kansas. Please be advised the State of Kansas does not tax such services.

The Kansas retailers' sales tax act taxes all sales of tangible personal property. The act taxes only those services that are enumerated in it. Providing criminal background checks is not one of the enumerated services. Accordingly, your payment for criminal background checks are not subject to Kansas tax.

I hope that this letter resolves your problem. If you or the company you're doing business with have any additional questions, please call me at 7850357-0827.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 10/17/2005 Date Modified: 10/17/2005

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