Does a company owe Kansas tax on promotional display materials it ships into Kansas at its client's direction?

Plain-English summary

A company was shipping "Vinyl Applicator Packs" ("VAPs") into Kansas at the direction of its client. The VAPs are used by the client's wholesale customers to display samples of roofing materials. The company asked whether Kansas imposes a sales or compensating tax on the VAPs shipped into the state.

Compensating (use) tax applies to property used in Kansas. The Department explained that "[c]ompensating tax is levied for the privilege of using, storing, or compounding within this state any article of tangible personal property," and "shall be collected in an amount equal to the consideration paid by the consumer multiplied by the rate of 4.9%."

The holding. "Your client's company is obligated to remit compensating tax to the state of Kansas on all promotional materials[] that are delivered to an address within this state."

Bottom line: promotional display materials such as the VAPs are taxable — the client's company must remit Kansas compensating (use) tax at 4.9% on the promotional materials it has delivered to Kansas addresses.

What this means for you

Promotional materials are consumed by the business that distributes them

Giveaway or display items like sample packs are not sold to a customer; the business that furnishes them is the final consumer. That is why the tax falls on the business as compensating (use) tax rather than as a sales tax collected from a buyer.

The trigger is delivery/use in Kansas

Compensating tax reaches tangible personal property used, stored, or compounded in Kansas. Shipping promotional materials to Kansas addresses brings them within the tax even when the shipper is out of state.

The rate here was 4.9%

The Department applied the 4.9% state compensating tax rate in effect at the time. (Kansas rates and applicable local compensating taxes change over time; confirm the current rate for any present-day transaction.)

Who remits

On these facts, the client's company — the party responsible for the promotional materials delivered into Kansas — is obligated to remit the compensating tax.

Common questions

Q: Are promotional display materials taxable in Kansas?
A: Yes. The Department treated the promotional materials delivered to Kansas addresses as subject to Kansas compensating (use) tax.

Q: Why compensating tax rather than sales tax?
A: The materials are not sold to a customer; the business distributing them uses them in Kansas, and compensating tax is levied on using, storing, or compounding tangible personal property in the state.

Q: What rate applied?
A: The Department stated the compensating tax is collected at 4.9% of the consideration paid by the consumer, the state rate in effect at the time.

Q: Does it matter that the shipper is out of state?
A: No. The tax turns on the property being delivered to and used in Kansas, and the client's company was obligated to remit it.

Citations and references

• Kansas Compensating (Use) Tax — levied for the privilege of using, storing, or compounding tangible personal property in Kansas, collected at the consideration paid multiplied by the state rate (4.9% at the time of this ruling). The ruling stated this rule without citing a specific statutory subsection.
• 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-1998-215

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 16, 1998

XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX

Dear Mr. XXXXXX:

The purpose of this letter is to respond to your letter dated November 9, 1998.

At the direction of your client, your company is shipping into Kansas Vinyl Applicator Packs (“VAP”.) VAPs are used by wholesale customers of your client to display samples of roofing materials. You ask if Kansas law imposes a sales or compensating tax on VAPs shipped to Kansas.

Compensating tax is levied for the privilege of using, storing, or compounding within this state any article of tangible personal property. Such tax shall be collected in an amount equal to the consideration paid by the consumer multiplied by the rate of 4.9%.

Your client’s company is obligated to remit compensating tax to the state of Kansas on all promotional materials, that are delivered to an address within this state.

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

Date Composed: 12/18/1998 Date Modified: 10/10/2001

Table 1

Table 2