If a company sells computer training classes whose fee includes manuals participants keep, does it charge sales tax on the manuals?

Plain-English summary

A company that provides computer training classes to businesses and individuals charges a single lump-sum fee that includes training manuals. Class participants keep the manuals. The company asked whether it should be remitting sales tax on the manuals that are included as part of the class materials.

The service is not taxable, but the provider owes tax on the manuals. The Department explained that "Kansas law does not impose a sales tax on gross receipts generated from the service of providing training or instruction." Because participants pay one lump-sum fee for instruction plus materials, "the gross receipt from the service of providing computer training classes would not be subject to Kansas sales tax."

Who pays the tax on the manuals? The provider does. In the Department's opinion, "your company would be the consumer of these materials," and "your company is required to pay sales or compensating tax when purchasing these materials."

Bottom line: the training company does not collect sales tax from its students on the class fee, but it must pay Kansas sales or compensating (use) tax when it buys the manuals it hands out — because it is treated as the final consumer of those materials.

What this means for you

A bundled service fee is not automatically taxable

When the true object of the transaction is a nontaxable service (here, instruction), the Department does not carve the materials back out and tax them separately just because the customer keeps them. The whole lump-sum fee rode along as an untaxed training service.

But someone still pays tax on the goods

The tax does not disappear — it shifts up the chain. The provider is the "consumer" of the manuals and pays sales or compensating tax when it buys them. It should not give its supplier a resale exemption certificate for those manuals, because it is not reselling them.

Sales vs. compensating (use) tax

If the manuals are bought from a Kansas vendor, the vendor collects Kansas sales tax. If they are bought from an out-of-state vendor who does not collect Kansas tax, the provider owes Kansas compensating (use) tax on the purchase. Either way the provider bears the tax as the end user.

This is one taxpayer's ruling

This letter binds the Department only as to the company that requested it, on the facts it described (a genuine instructional service with materials included in a single fee). A business that mainly sells goods and adds token "instruction" could reach a different result.

Common questions

Do we charge our students sales tax on the class fee?
No. Under this ruling the gross receipts from providing computer training or instruction are not subject to Kansas sales tax, even though the fee includes manuals the students keep.

Then how is the state getting its tax?
On the manuals, at the point where the training company buys them. The company is the consumer of the materials and pays sales or compensating tax on that purchase.

Can we buy the manuals tax-free for resale?
No. Because the company is treated as the consumer of the manuals rather than a reseller, it should pay tax on them rather than issue a resale exemption certificate.

What if we sold manuals separately, not as part of a class?
That would be a different transaction. This ruling addresses manuals included in the lump-sum fee for a training service; a stand-alone sale of tangible personal property is a retail sale of goods and is analyzed on its own facts.

Citations and references

• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings; this ruling is issued under it and is binding only as to the requesting taxpayer and the facts presented.
• The ruling states the governing principle without citing a numbered statute: "Kansas law does not impose a sales tax on gross receipts generated from the service of providing training or instruction," and the provider "would be the consumer of these materials" who must "pay sales or compensating tax when purchasing these materials."
• Issued November 10, 1998 by Mark D. Ciardullo, Tax Specialist, Office of Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-184

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 10, 1998

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Dear XXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated October 22, 1998.

You seek a private letter ruling based on the following facts. Your company provides for a fee computer training classes to businesses and individuals. The fee for this training includes training manuals. The training manuals are retained by the class participants.

Kansas law does not impose a sales tax on gross receipts generated from the service of providing training or instruction. Persons participating in these classes are charged a lump sum fee. The fee includes instruction and training materials such as manuals. You are seeking advice as to whether not you should be remitting sales tax on manuals that are included as a part of class materials.

It is the opinion of Kansas Department of Revenue that your company would be the consumer of these materials. Your company is required to pay sales or compensating tax when purchasing these materials. The gross receipt from the service of providing computer training classes would not be subject to Kansas sales tax.

This is a private letter ruling pursuant to Kansas Administrative Regulation 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 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 affects this ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 11/12/1998 Date Modified: 10/10/2001

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