Can a Kansas installer honor an out-of-state sign company's multi-jurisdiction exemption certificate on its installation charges?

Plain-English summary

A Kansas business was hired by an out-of-state sign company to install that company's signs at Kansas locations. The out-of-state company gave the Kansas installer a Multi-Jurisdiction Exemption Certificate (Form ST-28M) claiming exemption on the taxable installation charges the installer would bill it. The installer asked: can I honor it? The Department's answer: no.

Three reasons:

1. Wrong certificate for the situation. Form ST-28M is meant for out-of-state businesses that have no Kansas nexus and aren't registered here, to buy tangible personal property for resale. But by hiring a Kansas company as its agent to install signs it sold to Kansas customers, the out-of-state company becomes a "retailer doing business in this state" under K.S.A. 79-3702(h)(1)(B) — a definition that reaches a retailer with an agent or contractor installing property in Kansas. It therefore must register and collect Kansas retailers' compensating use tax from its Kansas customers, and ST-28M is not for companies that are (or should be) registered.

2. Not a resale of property. A resale exemption under K.S.A. 79-3651(d) requires the buyer to be buying property of the same kind for resale. The out-of-state company isn't buying tangible personal property from the installer — it's buying taxable installation services — and a resale certificate cannot be used for services to real property.

3. How sign installation is actually taxed. Under K.A.R. 92-19-18a (Signs and Billboards) and Department guidelines EDU-27 and EDU-29, the tax treatment depends on the nature of the work: separately-stated charges to build a support pylon or run underground/behind-wall wiring are taxed as construction services, while simply replacing a sign and connecting it to existing wiring is taxed as part of the sale and installation of the sign under K.S.A. 79-3602(ll)(1)(E).

What this means for you

Kansas installers and subcontractors

Don't accept a Form ST-28M from an out-of-state company to exempt your installation charges. If that company is using you to install goods it sold to Kansas customers, it has Kansas nexus and should be registered and collecting tax — and ST-28M (and resale certificates generally) can't exempt charges for installation services, especially services to real property.

Out-of-state companies selling and installing in Kansas

Hiring a Kansas agent or contractor to install what you sell can make you a "retailer doing business in this state," obligating you to register and collect Kansas use tax from your customers. You can't use a Multi-Jurisdiction Exemption Certificate to sidestep tax on installation work.

Common questions

Q: Can a Kansas installer honor an out-of-state company's Form ST-28M on installation charges?
A: No. The Department said ST-28M is only for unregistered out-of-state buyers purchasing tangible personal property for resale — not for exempting taxable installation services.

Q: Why does hiring a Kansas installer matter?
A: Because it makes the out-of-state company a "retailer doing business in this state" under K.S.A. 79-3702(h)(1)(B), which must register and collect Kansas use tax from its Kansas customers.

Q: Can a resale certificate exempt the installation service?
A: No. A resale exemption applies to buying property of the same kind for resale, and it cannot be used for services to real property (K.S.A. 79-3651(d)).

Q: How is sign installation taxed in Kansas?
A: It depends on the work — building a pylon or running underground wiring is taxed as construction services, while replacing a sign on existing wiring is taxed as part of the sale and installation of the sign (K.A.R. 92-19-18a; K.S.A. 79-3602(ll)(1)(E)).

Citations and references

• K.S.A. 79-3702(h)(1)(B) — defines "retailer doing business in this state" to include a retailer with an agent, contractor, or representative installing tangible personal property in Kansas; makes the out-of-state sign company a Kansas-registered retailer.
• K.S.A. 79-3603 — imposes tax for the privilege of selling tangible personal property at retail in Kansas.
• K.S.A. 79-3651(d) — sets the conditions for using a resale exemption certificate (buying like property for resale; not for services to real property).
• K.A.R. 92-19-18a — Signs and Billboards regulation governing how the sale and installation of signs is taxed (with EDU-27 and EDU-29 guidelines).
• K.S.A. 79-3602(ll)(1)(E) — the "selling price" provision under which a simple sign replacement connected to existing wiring is taxed as part of the sale and installation of the sign.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-2012-003

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

September 13, 2012

XXXX
XXXX
XXXX

RE: Your letter dated July 10, 2012

Dear XXXX:

Thank you for your recent letter. You work for a Kansas business that has been hired by an out-of-state sign company to install its signs at different locations in Kansas. You ask if you can honor a Multi-Jurisdiction Exemption Certificate the out-of-state company issued that claims sales tax exemption on the taxable charges you will bill to the company for installing its signs in Kansas. The answer is no. There are several reasons for this.

First, a Multi-Jurisdiction Exemption Certificate, Form ST-28M, is intended to be used by out-of-state businesses that do not have nexus with Kansas and that are not registered with the department as Kansas retailers. Out-of-state retailers, wholesalers, and manufacturers may issue a Form ST-28M to Kansas sellers to exempt their purchases of tangible personal property (TPP) for resale, including TPP purchased for resale in the sense it will become an ingredient or component part of a manufactured product. The Form ST-28M specifically instructs: “[o]nly goods and merchandise (tangible personal property) are exempt . . .” under the certificate.

Your business was hired by the out-of-state sign company to install signs the out-of-state company sold to Kansas customers and agreed to install. Accordingly, your business is acting as an agent for the out-of-state company when it performs the installation work the out-of-state company is contractually obligated to perform for its customers in Kansas. This agency relationship qualifies the out-of-state company as a “retailer doing business in the state” for purposes of Kansas sales and compensating taxes. K.S.A. 79-3702(h)(1)(B); K.S.A. 79-3603(“For the privilege of engaging in the business of selling tangible personal property at retail in this state . . . .”). K.S.A. 79-3702(h)(1)(B) defines “retailer doing business in this state” to include:

(B) any retailer having an employee, independent contractor, agent, representative, salesperson, canvasser or solicitor operating in this state either permanently or temporarily, under the authority of the retailer or its subsidiary, for the purpose of selling, delivering, installing, assembling, servicing, repairing, soliciting sales or the taking of orders for tangible personal property;

Because the out-of-state sign company is a retailer doing business in Kansas, it is required to register with the department and collect Kansas retailers’ compensating use tax from its Kansas customers who buy the signs you install. The Form ST-28M is not intended to be used by out-of-state companies that are, or should be, registered to collect Kansas retailers’ sales or use tax.

Second, K.S.A. 79-3651(d) instructs:

(d) To lawfully present a resale exemption certificate the purchaser must be engaged in the business of selling property or services of the same kind that is purchased, hold a registration certificate, except as otherwise permitted in subsection (c) for drop shipment sales into this state, and at the time of purchase, either intend to resell the property in the regular course of business or be unable to ascertain whether the property will be resold or used for some other purpose. A resale exemption certificate may be used for resale of services to tangible personal property and not for services to real property.

As noted above, the Form ST-28M is intended to be used by out-of-state companies that buy TPP for resale from Kansas sellers. However, the out-of-state sign company is not buying TPP from your business. Instead, your business has agreed to perform taxable installation services the out-of-state company is obligated to provide under its signage contracts with Kansas customers. Nothing in a Form ST-28M suggests the exemption certificate is intended to exempt a service provider’s charges for taxable installation services.

Third, how Kansas sales tax applies to the sale and installation of signs is explained in K.A.R. 92-19-18a, Signs and Billboards; EDU-27, Sales Tax Guidelines for Fabricators, and EDU-29, Sales Tax Guidelines for Contractor Fabricators and Contractor-Manufacturers. I have enclosed copies of these publications for your review. It is clear from your letter the directives in these publications are not being followed.

These publications explain that how sign companies are required to charge tax to customers for the sale and installation of its signs. How tax is charged depends on the nature of the installation services performed where the sign is placed. For example, separately-stated charges for construction services performed to build a support pylon for a sign, or for electrical services performed to run wiring to the sign underground or behind walls, are taxed as construction services. If a sign company contracts to sell and install a sign and simply replace the old sign and connect the replacement sign to existing wiring, the installation charges are taxed as part of the sale and installation of the sign and not as separate construction services. See K.S.A.79-3602(ll)(1)(E and enclosed department publications. The sales tax treatments accorded to charges for different types of sign installation and construction services are explained in more detail in K.A.R. 92-19-18a, EDU-27, and EDU-29, which are enclosed.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosures

Date Composed: 09/12/2012 Date Modified: 09/13/2012

Table 1

Table 2