Can a print shop buy copier toner tax-free for resale copies, and are its copier maintenance agreements taxable?

Plain-English summary

A company that "operates printing presses and three copiers" to "manufacture copies for resale to the public" asked about two charges it was paying tax on. Suppliers were "charging [it] Kansas retailers' sales tax on supplies used in the printing and copying process including toner," and its service-agreement provider was "charging [it] sales tax on copier maintenance agreements."

Toner is exempt as a component of the copies. The Department ruled that "[y]our company should purchase toner exempt from Kansas retailers' sales tax as an ingredient or component part [of] an item intended for resale." Because the toner ends up in the finished copies the company sells, it can be bought tax-free.

Copier maintenance agreements are taxable. Treating the service agreements as contracts "to maintain your copier equipment," the Department ruled that "[t]hese maintenance service contracts are subject to Kansas retailers' sales tax."

Bottom line: the ink/toner that becomes part of a copy sold to a customer qualifies for the ingredient-or-component exemption and should be purchased tax-free, but a maintenance contract on the copier is a separately taxable purchase.

What this means for you

Materials that become part of a product for resale are exempt

Toner is consumed into the finished copies the shop sells, so it qualifies as an ingredient or component part of property intended for resale and should be bought with an exemption certificate rather than taxed.

The exemption depends on producing something for resale

The key fact was that the copies are manufactured "for resale to the public." A shop making copies it sells is buying toner as a component of that saleable product.

Maintenance contracts are taxable regardless of the resale activity

Even though the copier is used to make products for resale, the maintenance agreement that keeps the copier running is a taxable purchase. Kansas treats maintenance service contracts as subject to sales tax.

Correct the over-collection going forward

The company had been charged tax on toner it could buy exempt. It should give suppliers the appropriate resale/ingredient exemption certificate for toner going forward, while continuing to pay tax on the copier maintenance agreements.

Common questions

Can a print shop buy toner tax-free?
Yes. When the toner becomes part of copies the shop sells, it is an ingredient or component part of an item intended for resale and should be purchased exempt from Kansas sales tax.

Are copier maintenance agreements taxable in Kansas?
Yes. The Department ruled that maintenance service contracts to maintain the copier equipment are subject to Kansas retailers' sales tax.

Why is toner exempt but the maintenance contract taxable?
Toner is physically consumed into the product sold to customers (resale component), while the maintenance contract is a taxable service purchased by the shop as the final consumer.

What should the shop do about tax already charged on toner?
Provide suppliers the appropriate exemption certificate so toner is purchased tax-free going forward, consistent with the ruling.

Citations and references

• The ruling applies the Kansas exemption for property purchased as an ingredient or component part of an item intended for resale (toner in the copies), and the rule that maintenance service contracts are taxable, without citing numbered statutes.
• 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 September 11, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-126

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 11, 1998

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Dear XXXXXXXX:

The purpose of this letter is to respond to your letter dated August 17, 1998. This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59.

You generally stated in your letter that your company XXXXXXXXXXX operates printing presses and three copiers. Suppliers are charging you Kansas retailers’ sales tax on supplies used in the printing and copying process including toner. Your service agreement provider is charging you sales tax on copier maintenance agreements. The copier and supplies are used solely to manufacture copies for resale to the public.

Your company should purchase toner exempt from Kansas retailers’ sales tax as an ingredient or component part on an item intended for resale. I assume that the service agreements you're referring to are to maintain your copier equipment. These maintenance service contracts are subject to Kansas retailers’ sales tax.

This private letter ruling 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 private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially effects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 09/11/1998 Date Modified: 10/10/2001

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