Are materials sold to a contractor building on an Indian reservation in Kansas subject to Kansas sales or use tax?

Plain-English summary

A company contracting to build and equip a structure within the boundaries of a federally recognized Indian reservation in Kansas asked about sales tax. The party it contracted with had asserted that the project was exempt from Kansas retailers' sales tax because of where the building was located.

The Department disagreed as to the contractor's materials. Under K.S.A. 79-3603(l), the gross receipts from sales of tangible personal property to all contractors, subcontractors, or repairmen — of materials and supplies for use in erecting structures for others or improving, altering, or repairing real or personal property of others — are subject to tax. Kansas imposes sales and use tax on the final consumer, and contractors are the final user or consumer under Kansas statute and regulation. The Department concluded that sales or delivery of materials to the contractor for constructing buildings and facilities on the reservation are subject to Kansas retailers' sales or compensating (use) tax.

What this means for you

In Kansas, a contractor is treated as the final consumer of the materials it buys — so the contractor (not the property owner) bears the sales or use tax on those materials.

• Contractors pay tax on materials. Buying materials to build for someone else does not make the purchase a tax-free "sale for resale"; the contractor is the taxable final user.
• The building's location can't be borrowed as an exemption. The fact that the finished structure sits on an Indian reservation did not exempt the contractor's purchase of construction materials.
• Sales or use tax applies. Kansas retailers' sales tax applies to in-state material purchases; compensating (use) tax applies to materials brought in from out of state.

Note that an exemption tied to a project owner (such as a tribe's own qualifying purchase, arranged through the proper project-exemption mechanism) is a separate question from the ordinary rule that a contractor's own material purchases are taxable.

Common questions

Do contractors pay sales tax on materials in Kansas?
Yes. Under K.S.A. 79-3603(l), contractors, subcontractors, and repairmen are the final consumers of the materials they buy, so those purchases are taxable.

Does building on an Indian reservation make the materials exempt?
No. The Department ruled that materials sold or delivered to a contractor for construction on a Kansas reservation are subject to Kansas sales or compensating use tax.

Sales tax or use tax — which one?
Kansas retailers' sales tax applies to materials purchased in Kansas; compensating (use) tax applies to materials the contractor brings in from out of state.

Can the contractor buy the materials tax-free for resale?
No. Because the contractor is the final user/consumer, the purchase is not a sale for resale.

Citations and references

• K.S.A. 79-3603(l) — imposes tax on gross receipts from sales of tangible personal property to contractors, subcontractors, and repairmen of materials and supplies used in building or improving real or personal property of others (contractors are the final consumer).

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-34.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

April 8, 1998

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Dear XXXXXXX:

The purpose of this letter is to respond to your letter dated April 6, 1998.

You requested a private letter ruling on the following question.

XXXXXXXXXXXXXXX is contracting to build and equip a XXXXXXXXXXXXXXXXX within the boundaries of a federally recognized Indian reservation that is located within the borders of the State of Kansas.

The party that you have contracted with has asserted that they are exempt from Kansas retailers’ sales tax by virtue of the location of the building being constructed.

Sales of tangible personal property to contractors, subcontractors and repairmen are subject to Kansas retailers sales tax or Kansas compensating use tax per K.S.A. 79-3603(l). It states:

(l) the gross receipts received from the sales of tangible personal property to all contractors, subcontractors or repairmen of materials and supplies for use by them in erecting structures for others, or building on, or otherwise improving, altering, or repairing real or personal property of others;

The imposition of sale and use tax in Kansas is on the final consumer. Contractors are the final user or consumer per Kansas statute and regulation.

In conclusion it is the opinion of the Kansas Department of Revenue that sales or delivery of tangible personal property (materials) to contractors for use by the contractor in constructing building and facilities on the reservation are subject to Kansas retailers’ sales or Kansas compensating (use) tax.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 04/08/1998 Date Modified: 10/10/2001

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