Does a company owe Kansas sales tax for hooking up a network computer, selling parts, or servicing tangible personal property?

Plain-English summary

A representative asked how Kansas sales tax applies to what a client (referred to as "B") does when it connects computers. The Department separated the answer into three situations.

Merely plugging in the computer is not taxed. The Department advised that the client "would not be obligated to collect and remit Kansas sales tax(es), if they are merely plugging in the network computer to an electrical outlet." Simply making the physical hook-up is not a taxable event.

Selling parts is taxed. "However, if B is selling parts to the end consumer, your client would be obligated to collect the appropriate Kansas sales tax(es) on the gross receipts received from the sale of said parts." A sale of tangible personal property (the parts) is a taxable retail sale.

Servicing tangible personal property is taxed. "If your client, B[,] is providing services to alter or maintain tangible personal property for the end user-consumer, C, then the transaction would be subject to sales tax in the state of Kansas. Additionally, any materials and supplies sold to the end user would likewise be subject to Kansas sales tax."

Bottom line: the tax result depends on what the company is actually doing. A bare hook-up is not taxable, but selling parts, or altering/maintaining a customer's tangible personal property (along with any materials sold in doing so), is subject to Kansas sales tax.

What this means for you

Distinguish a bare connection from a taxable service

Kansas did not treat simply plugging a network computer into an outlet as a taxable service. The taxable line is crossed when the provider sells tangible personal property or performs a service that alters or maintains a customer's tangible personal property.

Selling parts is always a taxable sale

If the provider sells parts to the end consumer, it must collect Kansas sales tax on the gross receipts from those parts. That is a straightforward retail sale of tangible personal property.

Servicing a customer's equipment is a taxable service

Services to "alter or maintain tangible personal property" for the end user are taxable in Kansas. If the provider both services the equipment and sells materials or supplies to the customer, both the service and the materials are taxable.

Look at the substance of each job

Because the answer turns on what the provider actually does, a company doing a mix of activities should track which jobs are bare hook-ups (not taxed) and which involve selling parts or servicing equipment (taxed), and charge tax accordingly.

Common questions

Is plugging in / hooking up a computer taxable in Kansas?
No. The Department said merely plugging the network computer into an electrical outlet does not obligate the provider to collect and remit Kansas sales tax.

Do I charge tax when I sell computer parts?
Yes. Selling parts to the end consumer is a taxable retail sale, and the provider must collect sales tax on the gross receipts from those parts.

Is servicing a customer's computer taxable?
Yes. Services to alter or maintain tangible personal property for the end user are subject to Kansas sales tax, and any materials and supplies sold to the end user are taxable too.

What determines whether I owe tax?
The nature of the transaction — a bare hook-up is not taxed, but selling parts or servicing tangible personal property is.

Citations and references

• The ruling applies general Kansas sales tax principles — retail sales of tangible personal property (parts) and services to alter or maintain tangible personal property are taxable, while a bare hook-up is not — without citing a specific numbered statute.
• 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 16, 1998 by Thomas P. Browne, Jr., Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-136

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 16, 1998

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Dear Mr. TTTTT:

We wish to acknowledge receipt of your letter dated July 31, 1998, regarding the application of Kansas Retailers’ Sales tax.

Please be advised that if your client B would not be obligated to collect and remit Kansas sales tax(es), if they are merely plugging in the network computer to an electrical outlet. However, if B is selling parts to the end consumer, your client would be obligated to collect the appropriate Kansas sales tax(es) on the gross receipts received from the sale of said parts.

If your client, B is providing services to alter or maintain tangible personal property for the end user-consumer, C, then the transaction would be subject to sales tax in the state of Kansas. Additionally, any materials and supplies sold to the end user would likewise be 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 in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially affects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 09/25/1998 Date Modified: 10/10/2001

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