How can a wholesaler stop being charged Kansas compensating tax on goods it buys and resells to Kansas retailers?

Plain-English summary

A wholesaler occasionally sells refrigerants to Kansas retailers for resale. Its vendor, DuPont, ships the goods directly from out-of-state plants to the Kansas retailers but bills the wholesaler — and DuPont had been charging the wholesaler Kansas compensating tax. The wholesaler asked how to stop paying that tax, since its customers are registered Kansas retailers who resell the refrigerants at retail.

The fix is a resale exemption certificate. The Department advised: "To avoid paying tax on these sales you must register for Kansas sales tax and provide the vendor, the DuPont Corporation, with a Kansas resale exemption certificate. This will allow DuPont to deliver the refrigerants to Kansas businesses and not bill you tax." The Department enclosed a registration application and a Kansas exemption certificate for the wholesaler to complete and give to DuPont.

Bottom line: because the wholesaler buys the goods for resale, it should not be paying tax on those purchases. To document that, it must register for Kansas sales tax and furnish its vendor a resale exemption certificate; the vendor can then stop charging tax.

What this means for you

Purchases for resale are exempt — if documented

Buying goods to resell them is not a taxable purchase, but the buyer has to prove it. A completed resale exemption certificate given to the vendor is how the buyer documents that the goods are for resale so the vendor does not charge tax.

Registration comes first

To issue a Kansas resale exemption certificate, the buyer generally must be registered for Kansas sales tax. The Department told the wholesaler to register and enclosed the application.

It works even on drop-shipped goods

Here the vendor shipped directly to the wholesaler's Kansas customers but billed the wholesaler. The resale certificate still applies: with it on file, the vendor delivers to the Kansas businesses without billing the wholesaler tax.

Without the certificate, the vendor must charge tax

Absent a resale certificate, the vendor was charging compensating tax on the transactions. The certificate is what relieves the vendor of that obligation.

Common questions

Q: Why was the wholesaler being charged Kansas compensating tax?
A: Because it had not given its vendor a resale exemption certificate; without it, the vendor charged tax on the goods billed to the wholesaler.

Q: How does the wholesaler stop paying the tax?
A: Register for Kansas sales tax and provide the vendor a completed Kansas resale exemption certificate.

Q: Does it matter that the goods ship directly to the wholesaler's customers?
A: No. With the resale certificate on file, the vendor can deliver to the Kansas businesses and not bill the wholesaler tax.

Q: Are the goods ever taxed?
A: The retailers who ultimately sell the refrigerants at retail collect sales tax from their customers; the wholesaler's purchase for resale is not taxed.

Citations and references

• Kansas resale exemption — a purchase of goods for resale is not taxed when the buyer, registered for Kansas sales tax, gives the seller a completed resale exemption certificate; the ruling applied this rule without citing a specific statutory subsection.
• Kansas sales tax registration — a business making sales for resale generally must register with the Department in order to issue resale exemption certificates.
• K.A.R. 92-19-59 — the regulation authorizing private letter rulings; this ruling was issued under it and binds the Department only as to the requesting taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-194

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 13, 1998

XXXX
XXXX
XXXX

RE: Your letter postmarked on September 23, 1998

Dear XXX:

This is in response to your letter the we received in September. I have also talked with you. You indicated that you occasionally sell refrigerants to Kansas retailers for resale. These orders are shipped to the Kansas retailers from DuPont plants in other states and are billed to you. DuPont has been charging you Kansas compensating tax on these sales. You ask what you can do to avoid paying this tax since the purchasers are registered Kansas retailers who eventually resell the refrigerants at retail.

To avoid paying tax on these sales you must register for Kansas sales tax and provide the vendor, the DuPont Corporation, with a Kansas resale exemption certificate. This will allow DuPont to deliver the refrigerants to Kansas businesses and not bill you tax. I have enclosed a registration application that you can use to register for Kansas sales tax. I have also enclosed a copy of a Kansas exemption certificate that you can complete and provide to DuPont.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided with 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 affects this determination. Please call me if you have any additional questions.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosures

Date Composed: 11/23/1998 Date Modified: 10/10/2001

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