How does Kansas sales tax apply to a company's shipping/handling charges, distributor support fees, carrier damage payments, and newsletters mailed into Kansas?

Plain-English summary

A company that sells through distributors asked several questions about how Kansas sales and use tax applies to its charges. The Department addressed each in turn.

Shipping and handling are in the tax base. "The amount the sales tax is to be based on is the retail selling price plus any shipping, handling or freight charges that is charged to the distributor." So delivery-related charges billed to the distributor are part of the taxable amount.

Carrier damage payments are not sales. "Payments made by a carrier to a retailer represent only the recovery of damages for the loss, injury or conver[s]ion of property and are not retail sales as contemplated by K.S.A. 79-3602(e)." Therefore "Kansas sales or compensating tax would not be due on such transfers."

Distributor support fees are not taxable. "The annual fee which entitles your distributors to receive monthly newsletters, as well as distributor support services, would not be subject to sales tax in the state of Kansas, since the respective distributor support services is not an enumerated service[] subject to sales tax."

But newsletters mailed into Kansas trigger use tax. "Your company would be the ultimate consumer of the total cost of the newsletters that are mailed in to the state of Kansas." As a result, "your company would be obligated to remit the Kansas Compensating Tax of 4.9% on the cost amount of said newsletters, unless the appropriate sales/use tax was paid to the printer."

Bottom line: include shipping and handling in the taxable price; do not tax carrier damage reimbursements or the distributor-support/newsletter fee; and pay 4.9% Kansas compensating use tax on the cost of newsletters mailed into Kansas unless tax was already paid to the printer.

What this means for you

Shipping and handling ride with the sale

When you charge a distributor for shipping, handling, or freight, those charges are part of the retail selling price for sales-tax purposes. They are not a separate, untaxed line item.

Damage reimbursements are not revenue from a sale

Money a carrier pays a retailer to make good on damaged or lost goods is compensation for a loss, not consideration for a retail sale. It is outside the sales/compensating tax.

Support services can be nontaxable — check the enumerated list

Kansas taxes only enumerated services. A distributor-support package (including monthly newsletters) is not on that list, so the annual fee for it is not taxable.

You are the consumer of promotional materials you distribute

Newsletters your company produces and mails to distributors in Kansas are consumed by your company. If a Kansas vendor or the printer did not charge tax, you owe 4.9% Kansas compensating use tax on their cost. Keep proof of any tax paid to the printer to avoid double payment.

Common questions

Do we charge tax on shipping and handling?
Yes. The taxable amount is the retail selling price plus any shipping, handling, or freight charged to the distributor.

Is a carrier's payment for damaged goods taxable?
No. It is recovery of damages for loss, injury, or conversion of property — not a retail sale — so no Kansas sales or compensating tax is due on it.

Is our distributor-support/newsletter fee taxable?
No. Distributor support services are not an enumerated taxable service, so the annual fee is not subject to Kansas sales tax.

Do we owe anything on the newsletters we mail into Kansas?
Yes. Your company is the consumer of those newsletters and owes 4.9% Kansas compensating use tax on their cost, unless the appropriate sales/use tax was already paid to the printer.

Citations and references

• K.S.A. 79-3602(e) — defines "sale at retail"; the Department relied on it to conclude that a carrier's damage payment is not a retail sale.
• The ruling states the shipping/handling, distributor-support, and use-tax conclusions without citing additional numbered statutes; the 4.9% figure is the Kansas compensating (use) tax rate.
• 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 24, 1998 by Thomas P. Browne, Jr., Tax Specialist, Office of Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-152

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 24, 1998

TTTTTTTTTTTTT
TTTTTTTTTTTTT
TTTTTTTTTTTTT
TTTTTTTTTTTTT

Dear Ms. TTTTTT:

We wish to acknowledge receipt of your letter dated September 1, 1998, regarding the application of Kansas Retailers’ Sales tax.

The amount the sales tax is to be based on is the retail selling price plus any shipping, handling or freight charges that is charged to the distributor. However, payments made by a carrier to a retailer represent only the recovery of damages for the loss, injury or conversation of property and are not retail sales as contemplated by K.S.A. 79-3602(e) of the Kansas retailers’ sales tax act. Therefore, Kansas sales or compensating tax would not be due on such transfers.

Please be advised that the annual fee which entitles your distributors to receive monthly newsletters, as well as distributor support services, would not be subject to sales tax in the state of Kansas, since the respective distributor support services is not an enumerated services subject to sales tax. Your company would be the ultimate consumer of the total cost of the newsletters that are mailed in to the state of Kansas. Therefore, your company would be obligated to remit the Kansas Compensating Tax of 4.9% on the cost amount of said newsletters, unless the appropriate sales/use tax was paid to the printer.

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 effects 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: 10/05/1998 Date Modified: 10/10/2001

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