Must a Kansas buyer pay the compensating use tax billed by an out-of-state seller that has no Kansas warehouse, absent an exemption certificate?

Plain-English summary

An out-of-state company that is registered to collect and remit Kansas retailers' compensating (use) tax sold equipment to a Kansas entity and shipped it from a location outside Kansas. The company has no warehouse or business location in Kansas. It billed the Kansas buyer for compensating (use) tax, but the buyer refused to pay, arguing that because the seller has no Kansas warehouse, the buyer owes it no tax. The buyer also did not provide an exemption certificate. The seller asked the Department to decide whether the buyer must pay.

The Department ruled that, in the absence of an exemption certificate, the Kansas buyer is required to pay the tax to the seller.

What this means for you

Kansas compensating (use) tax applies to tangible personal property bought from out-of-state and used in Kansas. A seller's physical footprint (or lack of one) in Kansas does not decide whether the purchaser owes the tax.

• For Kansas buyers: if an out-of-state seller registered to collect Kansas use tax bills you the tax, you must pay it — unless you give the seller a valid exemption certificate showing the purchase is exempt. Refusing on the theory that the seller has no Kansas warehouse is not a valid basis to avoid the tax.
• For out-of-state sellers registered in Kansas: the ruling supports collecting the tax you are registered to collect; keep an exemption certificate on file for any purchase a buyer claims is exempt.
• The exemption certificate is the mechanism that relieves a purchaser of the tax. Without it, the tax is due.

Common questions

Does a Kansas buyer owe use tax if the seller has no Kansas location?
Yes. The Department ruled the buyer must pay the billed compensating (use) tax; the seller's lack of a Kansas warehouse does not excuse it.

How can a buyer avoid paying the tax the seller billed?
Only by providing a valid exemption certificate showing the purchase qualifies for an exemption. Absent that, the tax is due.

Who has to remit the tax here?
The out-of-state seller is registered to collect and remit Kansas compensating (use) tax; the buyer's obligation is to pay that tax to the seller (absent an exemption certificate).

Can I rely on this ruling for my own dispute?
Not directly. A private letter ruling binds the Department only for the requesting taxpayer and the stated facts. Use it as guidance and seek your own determination.

Citations and references

• The ruling states the Department's conclusion on the purchaser's obligation to pay billed compensating (use) tax absent an exemption certificate; it does not quote a specific numbered statute.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1998-38.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

April 27, 1998

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Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated April 10, 1998.

You generally stated in your letter: Your company XXXXXXXXXXXXX is registered to collect and remit Kansas retailers’ compensating (use) tax. Your company makes sales of tangible personal property to entities in Kansas. XXXXXXXXXXXXXX purchased from your company XXXXXXXXXXX equipment. The equipment was shipped from a location outside the State of Kansas. Your company does not maintain a warehouse or business location in Kansas. Your company billed XXXXX compensating (use) tax. XXXXX refuses to remit the tax to your company. Your company has asked XXXXX for exemption certificates. XXXXX has not provided your company with exemption certificates and stated that they are not required to pay you any tax as your company does not maintain a warehouse in Kansas. You have asked for a formal determination from the department as to whether or not XXXXX is required to pay the tax to your company.

It is the opinion of the Kansas Department of Revenue, that in absence of an exemption certificate XXXXX is required to pay the tax to XXXXXXXXXXXX.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 04/27/1998 Date Modified: 10/10/2001

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