Is a service that administers employee business-expense reimbursements subject to Kansas sales tax?

Plain-English summary

A company planned to administer business-expense reimbursements to the employees of employers in Kansas. In the arrangement described, the employer reimburses its employees for the expense and use of equipment the employee purchases, and the employee had already paid all applicable Kansas sales/use tax on that equipment at the time of purchase. The company asked whether the reimbursement service it provides is subject to Kansas sales tax.

The Department ruled that the reimbursement services are not currently subject to Kansas sales tax. As with other nontaxable services, though, the provider must pay sales tax on all articles of tangible personal property and all taxable services it purchases to provide the nontaxable service.

What this means for you

If your business administers or processes employee expense reimbursements for Kansas employers, that administrative service is treated as a non-enumerated service outside Kansas sales tax.

• The reimbursement service is nontaxable. Charging to administer expense reimbursements is not subject to Kansas sales tax under the facts described.
• Tax was already paid on the equipment. The underlying equipment the employees bought had Kansas sales/use tax paid at purchase — the reimbursement doesn't create a new taxable sale.
• You still owe tax on your own inputs. The provider is the final consumer of the tangible personal property and taxable services it buys to run the service, and owes sales or use tax on those.
• "Not currently" matters. The answer reflects the law as of the ruling; a change in the taxability of such services could change it.

Common questions

Is administering employee expense reimbursements taxable in Kansas?
No. The Department ruled that the reimbursement service described is not currently subject to Kansas sales tax.

Does the provider owe any Kansas tax?
Yes — on its own purchases. It must pay sales tax on the tangible personal property and taxable services it buys to provide the nontaxable service.

Is the reimbursement to the employee itself taxed?
No new sales tax arises from the reimbursement; the employee already paid Kansas sales/use tax on the equipment at the time of purchase.

Can another company rely on this ruling?
Not directly. A private letter ruling binds the Department only for the taxpayer and facts it was issued to. Use it as guidance and get your own determination.

Citations and references

• The ruling states the Department's conclusion that the reimbursement service is not currently subject to Kansas sales tax and that the provider owes tax on its own taxable inputs; it does not quote a specific numbered statute.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-27.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

March 6, 1998

TTTTTTTTTT
TTTTTTTTTT
TTTTTTTTTT
TTTTTTTTTT
TTTTTTTTTT

Dear Mr. TTTTTT:

We wish to acknowledge receipts of your letter dated February 6, 1998, regarding the application of Kansas Retailers’ Sales tax.

It is the understanding of this department that your company plans to administer business expense reimbursements to the employees of employers in the state of Kansas. You indicate in a letter to this department, that the transaction involves the employer reimbursing its employees for the expense and use of equipment that the employee purchases. Further, you state that the employee paid all applicable Kansas sales/use tax on the equipment at the time of purchase.

The reimbursement services that you are providing are not currently subject to sales tax in the state of Kansas. However, you must pay sales tax on all articles of tangible personal property and all taxable services purchased to provide the nontaxable services.

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: 03/11/1998 Date Modified: 10/10/2001

Table 1

Table 2