Are computer and internet business-center services provided to hotel guests subject to Kansas sales tax?

Plain-English summary

A company proposed to set up business centers "designed specifically for the hotel industry," giving hotel guests 24-hour access to a personal computer loaded with popular software, the Internet and e-mail, and document printing, faxing, and photocopying. It asked how Kansas sales and compensating tax applies to the venture.

The services are not taxable. The Department explained that "Kansas law imposes tax on the sale of tangible personal property and specific enumerated services," and concluded that "[t]he services that [this] concept provide[s] are not subject to Kansas retailers' sales tax." Kansas taxes only enumerated services, and these guest office services are not among them.

So the provider is the consumer of what it buys. Because the services it sells are not taxable, "all tangible personal property and taxable services purchased by your company are subject to sales or compensating tax." The Department confirmed that certain fee categories described in the company's letter are subject to Kansas sales or compensating tax, while two other fee categories are not.

Bottom line: offering guests computer, internet, and office services is not a taxable service in Kansas, so the company does not charge its guests sales tax on those services — but it must pay Kansas sales or compensating tax on the equipment and other property it buys to provide them, as the final consumer.

What this means for you

Kansas taxes only enumerated services

Kansas imposes sales tax on tangible personal property and a specific list of enumerated services. A service that is not on that list — like providing guests access to a computer, the Internet, and office equipment — is not taxable.

Non-taxable service means you are the end consumer

When a business sells a non-taxable service, it cannot buy the inputs tax-free for resale. The equipment, software, and supplies it uses to deliver the service are taxable to the business itself, as sales or compensating (use) tax.

Sort your fee categories

The Department found some of the company's fee categories taxable and others not. A provider offering a mix of charges should analyze each fee to determine whether it maps to a taxable sale of property or an enumerated service, or to a non-taxable service.

Compensating tax picks up untaxed purchases

Property the company buys without Kansas tax (for example, from out of state) for use in the centers is subject to Kansas compensating (use) tax.

Common questions

Q: Are computer and internet services offered to hotel guests taxable in Kansas?
A: No. The Department ruled these business-center services are not subject to Kansas retailers' sales tax because they are not enumerated taxable services.

Q: If the service isn't taxable, is there any tax to pay?
A: Yes — on the provider's side. The company owes Kansas sales or compensating tax on the tangible personal property and taxable services it buys to operate the centers.

Q: Why does the provider owe tax on its purchases?
A: Because it sells a non-taxable service, it is the final consumer of its inputs and cannot buy them tax-free for resale.

Q: Were all of the company's fees non-taxable?
A: No. The Department found some fee categories subject to Kansas sales or compensating tax and two categories not subject to tax.

Citations and references

• Kansas sales tax on tangible personal property and enumerated services — Kansas taxes sales of tangible personal property and specifically enumerated services; the guest computer, internet, and office services here are not enumerated, so they are not taxable. The ruling stated this without citing a specific statutory subsection.
• Kansas sales or compensating (use) tax on a service provider's purchases — because its services are not taxable, the company is the consumer and owes tax on the property and taxable services it buys to provide them.
• 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-1998-204

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 30, 1998

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Dear XXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated November 11, 1998.

Your company proposes to establish business centers designed specifically for the hotel industry. This concept is referred to as “XXXXXXXX”. “XXXXXX” provides hotel guests with 24-hour access to numerous office services. A hotel guest can utilize a personal computer loaded with popular software, and have access to the Internet and e-mail, as well as document printing, faxing, and photocopying.

You request the Kansas Department of Revenue rule regarding sales and compensating taxes impositions on such an undertaking.

Kansas law imposes tax on the sale of tangible personal property and specific enumerated services. The services that “XXXXXXXXXX” concept provide are not subject to Kansas retailers’ sales tax. Therefore, all tangible personal property and taxable services purchased by your company are subject to sales or compensating tax.

The following categories per your letter are subject to Kansas sales or compensating tax: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.

The fee categories of XXXXXXXX and XXXXXXXXXXX are not subject to Kansas sales or compensating 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 make 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 private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 12/08/1998 Date Modified: 10/10/2001

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