In a pick-and-pack fulfillment arrangement, are the printing costs, picking fees, and packing fees subject to Kansas sales tax?

Plain-English summary

A company used a Kansas vendor (based in Lenexa) for a "pick and pack service" and to arrange third-party printing of its print materials. The printed materials are warehoused until a customer orders them, then shipped to customers inside and outside Kansas. The vendor charges a picking fee ("the physical act of retrieving the product … from the shelf or pick line and segregating the merchandise") and a process fee/packing fee (entering the order, packing it, the container, and transport to the shipper). The company asked which charges are taxable.

Printing costs — taxable. For printed material warehoused for shipment within Kansas, the Department answered "Yes," the printing costs are subject to Kansas sales/use tax. For material printed by third-party vendors — whether ultimately shipped out of state or to Kansas customers — the Department said "[t]hese materials would be subject to Kansas sales tax if printed in Kansas or Kansas compensating (use) tax."

Picking fees — not taxable. For picking-fee charges on orders shipped out of state, and on orders that remain in Kansas, the Department answered "No" — not subject to Kansas sales tax.

Packing fees — not taxable. For packing fees, whether "the order is shipped out-of-state" or "shipped within the State of Kansas," the Department stated: "The fees … to package printed materials owned by you would not be subject to Kansas retailers['] sales tax."

Bottom line: the tangible product — the printing — is taxable (Kansas sales tax if printed in Kansas, otherwise compensating use tax), but the fulfillment labor charges (picking and packing) are non-taxable services, regardless of the shipment's destination.

What this means for you

The printing is the taxable piece

The printing costs are taxable — Kansas sales tax when the material is printed in Kansas, and Kansas compensating (use) tax otherwise. This holds whether the vendor arranges the printing or a third party does it, and whether the material is shipped in-state or out of state.

Picking fees are not taxable

The picking fee — retrieving and segregating the product to fill an order — is not subject to Kansas sales tax, for orders shipped out of state or remaining in Kansas.

Packing fees are not taxable

The process/packing fee for packaging the customer's own printed materials is not subject to Kansas retailers' sales tax, whether shipped within Kansas or out of state.

Separate the tangible goods from the fulfillment services

The result distinguishes taxable tangible personal property (the printed materials) from non-taxable fulfillment services (picking and packing). Billing should keep those categories distinct.

Common questions

Are the printing costs taxable?
Yes. They are subject to Kansas sales tax if printed in Kansas, or Kansas compensating (use) tax if not.

Are picking fees taxable?
No. Picking fees are not subject to Kansas sales tax, for orders shipped out of state or kept in Kansas.

Are packing fees taxable?
No. Fees to package the customer's own printed materials are not subject to Kansas retailers' sales tax, in-state or out of state.

Does the shipment destination change the fee answers?
No. The picking and packing fees are non-taxable regardless of whether the order ships within Kansas or out of state.

Citations and references

• The ruling answers a numbered list of questions in prose: printing costs are taxable (Kansas sales tax if printed in Kansas, otherwise compensating use tax); picking fees and packing fees for the customer's own printed materials are not subject to Kansas retailers' sales tax, regardless of shipment destination. No numbered statute is cited.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued June 12, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-52

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 12, 1998

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Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated March 31, 1998.

You generally stated in your letter: XXXXXXX has contracted with a Kansas vendor to perform a pick and pack service and arrange with 3rd party vendors to provide printing of XXXXXX print materials. The vendor, XXXXXXXXXXXXX is based in Lenexa, Kansas and provides the following services for XXXXXXXXX.

XXXXXX arranges for a majority of the printing of XXXXX various contracts and print materials. XXXXXX does not arrange all of the printing. The contracts and print materials which are either printed by a third party or arranged for by XXXXXX are warehoused at XXXXX until an order is placed by one of XXXXX customers or a sales representative.

Upon placement of the order, XXXXX then goes about the task of fulfilling the order and shipping the printed materials to the customer both within Kansas and outside Kansas.

As part of the pricing structure for the agreement, XXXXX established the anticipated number of orders on a monthly basis. An average number of line items per order is calculated and a price per line item of inventory which is picked is billed to XXXXX. This cost represents the picking fee.

The picking fee represents the physical act of retrieving the product form the shelf or pick line and segregating the merchandise to prepare the order to be packaged.

There also exists a process fee/packaging fee which is also charged per order.

The process fee/packing fee represents the costs associated with entering the order in the computer, packing the order in the proper container (box, envelope, etc.) the cost of the container, and a charge for transporting the order to either XXXXX or XXX for shipment.

In the current billing arrangement, we are being charged sales tax on the cost of the printing and on both the picking and process fee/packing charges.

Your questions are as follows:

1. Are the printing costs which XXXX incur for the printed material which is being warehoused at XXXXXX for shipment within Kansas subject to Kansas sales/use.

Answer: Yes.

2. Are the printing costs which XXXXXXXX incur for the printed material which is being warehoused at XXXXXXXX for shipment within Kansas subject to sales/use tax?

Answer: Yes.

3. Are the costs associates with the picking fee for orders which will be shipped out-of-state subject to Kansas sales tax.

Answer: No.

4. Are the costs associated with the picking fee for orders which will remain in Kansas subject to Kansas sales tax?

Answer: No.

5. Are print materials which were printed by 3rd party vendors (not using XXXXX) and shipped to XXXXX for warehousing until they are ordered and subsequently shipped out-of-state subject to Kansas sales tax?

Answer: These materials would be subject to Kansas sales tax if printed in Kansas or Kansas compensating (use) tax.

6. Are print materials which were printed by 3rd party vendors (not using XXXXX) and shipped to XXXXX for warehousing until they are ordered and subsequently shipped to Kansas customers subject to Kansas sales tax?

Answer: These materials would be subject to Kansas sales tax if printed in Kansas or Kansas compensating (use) tax.

7. Are the packing fees subject to Kansas sales tax if the order is shipped out-of-state?

The fees from XXXXX to package printed materials owned by you would not be subject to Kansas retailers sales tax.

8. Are the packing fees subject to Kansas sales tax if shipped within the State of Kansas?

The fees from XXXXX to package printed materials owned by you would not be subject to Kansas retailers sales tax.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 06/12/1998 Date Modified: 10/10/2001

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