Are internet charges to customers taxable in Kansas, and can an internet provider buy telephone lines for resale?

Plain-English summary

A telephone company that is also an internet provider asked whether internet services are subject to Kansas sales tax.

Internet charges to customers are not taxed. "Charges to customers for internet use are not subject to Kansas sales tax. Charges for services are subject to sales tax in Kansas only if the service is enumerated in K.S.A. 79-3603. Since internet services are not listed in K.S.A. 79-3603, internet charges to consumers should not be taxed."

Telephone charges billed to internet providers are taxed. The Department cautioned that a telephone company may lease lines to internet providers or bill them for line use or other telephone services. "All telephone charges billed to internet providers are subject to Kansas sales tax to the same extent as any other taxable telephone charges that are billed to business users. This includes use of lines to carry internet signal from the internet provider's receiver to the internet provider's customer."

No resale claim on the lines. "Internet providers cannot make resale claims for telephone lines because internet services are not subject to Kansas sales tax."

Bottom line: the retail internet service a provider sells to its customers is not taxable in Kansas, but the taxable telephone services the provider buys to deliver it are — and because the provider's own internet service is not taxable, it cannot use a resale exemption to buy those telephone lines tax-free.

What this means for you

Internet service is a non-enumerated (non-taxable) service

Kansas taxes only the services listed in K.S.A. 79-3603. Internet service is not on the list, so a provider does not charge Kansas sales tax on the internet charges it bills to customers.

Telephone charges to the provider remain taxable

Taxable telephone services do not become exempt just because they are used to deliver internet service. Telephone charges billed to an internet provider — including the lines carrying the internet signal to customers — are taxable like any other business telephone charges.

A provider cannot buy the lines for resale

The resale exemption applies when a business buys something to resell in a taxable sale. Because the internet service the provider ultimately sells is not taxable, the provider cannot claim resale on the underlying telephone lines and must pay tax on them.

Non-taxable output can still carry taxable input costs

This is the general pattern for a non-enumerated service: the service is untaxed, but the provider bears sales tax on the taxable inputs it buys to provide it.

Common questions

Are internet charges taxable in Kansas?
No. Internet service is not enumerated in K.S.A. 79-3603, so charges to customers for internet use are not subject to Kansas sales tax.

Are telephone charges billed to an internet provider taxable?
Yes. They are taxable to the same extent as any other business telephone charges, including lines used to carry the internet signal to the provider's customers.

Can an internet provider buy telephone lines for resale?
No. Because internet service is not taxable, the provider cannot make a resale claim for the telephone lines and must pay sales tax on them.

Which statute controls?
K.S.A. 79-3603 — services are taxable only if enumerated there, and internet service is not listed.

Citations and references

• K.S.A. 79-3603 — Kansas taxes only enumerated services; internet service is not listed, so internet charges to customers are not taxable.
• The ruling also holds that taxable telephone charges billed to internet providers (including lines carrying the internet signal) remain taxable, and that providers cannot make resale claims for those lines because internet service is not taxable.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued August 31, 1998 by Thomas E. Hatten, Attorney, Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-107

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 31, 1998

XXXXXX
XXXXXX
XXXXXX

RE: Your Correspondence of
April 20, 1998

Dear XXXX:

I have been asked to respond to your letter of April 20, 1998. In it, you ask if internet services are subject to Kansas sales tax. You state that your telephone company is an internet provider.

Charges to customers for internet use are not subject to Kansas sales tax. Charges for services are subject to sales tax in Kansas only if the service is enumerated in K.S.A. 79-3603. Since internet services are not listed in K.S.A. 79-3603, internet charges to consumers should not be taxed.

Please note that, as a telephone company, you may be leasing telephone lines to internet providers or otherwise billing them for the use of your lines or for other telephone services. All telephone charges billed to internet providers are subject to Kansas sales tax to the same extent as any other taxable telephone charges that are billed to business users. This includes use of lines to carry internet signal from the internet provider’s receiver to the internet provider’s customer. Internet providers cannot make resale claims for telephone lines because internet services are not subject to Kansas sales tax.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination. Please call me if you have any additional questions.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 09/02/1998 Date Modified: 10/10/2001

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