Does the residential remodeling labor exemption apply to the full amount a contractor bills the customer, or only to the underlying labor cost?

Plain-English summary

A contractor asked how much of its charge the new residential remodeling exemption covers — the labor cost or the full billing rate.

The exemption. "1998 Senate Bill No. 493 exempts certain construction services that were formerly subject to Kansas sales tax. Effective July 1, 1998, services performed to install or apply tangible personal property are exempt from sales tax when the services involve the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence."

The question. The contractor's "employee costs $20.00 per hour and the company bills at $30.00 an hour per employee," and it asked whether the exemption "would apply to the $30 per hour or only to the $20 per hour."

The answer. "The exemption would apply to the retailers total gross receipts associated with residential remodeling. Therefore, the amount you bill the consumer for service would be the amount that is exempt from the tax. In your example this would [be] the billing rate of $30 per hour."

Bottom line: the exemption is measured by what the contractor charges the customer, not by the contractor's internal labor cost. The full $30-per-hour billed amount is exempt.

What this means for you

The exemption tracks gross receipts

The residential remodeling exemption applies to the retailer's "total gross receipts" for the qualifying service — that is, what the contractor bills the customer, not the wage the contractor pays its worker.

The billing rate, not the cost, is the measure

In the example, the $30 billed to the consumer is fully exempt even though the employee costs only $20. The markup does not create a taxable amount.

The exemption is for the labor service

It covers services to install or apply tangible personal property in connection with residential construction, reconstruction, restoration, remodeling, renovation, repair, or replacement — the categories added by 1998 Senate Bill 493, effective July 1, 1998.

Materials are a separate question

This ruling addresses the labor charge. Materials used in residential projects are treated under their own rules and are not made exempt by this answer.

Common questions

Is residential remodeling labor exempt in Kansas?
Yes, effective July 1, 1998 under 1998 Senate Bill 493, for services to install or apply property in connection with residential construction, remodeling, renovation, or repair.

Is only the labor cost exempt, or the full billed amount?
The full billed amount. The exemption applies to the retailer's total gross receipts — the amount billed to the customer.

In the $20/$30 example, what is exempt?
The $30-per-hour billing rate charged to the consumer, not just the $20 employee cost.

Does this exemption cover materials?
No. This ruling addresses the labor service billed to the customer; materials are governed separately.

Citations and references

• 1998 Senate Bill No. 493 — effective July 1, 1998, exempts services to install or apply tangible personal property in connection with the original construction, reconstruction, restoration, remodeling, renovation, repair, or replacement of a residence.
• The Department applied the exemption to the retailer's total gross receipts (the amount billed to the consumer), so the full billing rate is exempt; the ruling states this in prose rather than by a numbered statute.
• 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 August 21, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-89

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 21, 1998

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXX
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Dear XXXXXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated July 1, 1998.

1998 Senate Bill No. 493 exempts certain construction services that were formerly subject to Kansas sales tax. Effective July 1, 1998, services performed to install or apply tangible personal property are exempt from sales tax when the services involve the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence.

In your letter you provided this example. An employee costs $20.00 per hour and the company bills at $30.00 an hour per employee. You asked if the exemption for residential remodeling would apply to the $30 per hour or only to the $20 per hour.

The exemption would apply to the retailers total gross receipts associated with residential remodeling. Therefore, the amount you bill the consumer for service would be the amount that is exempt from the tax. In your example this would the billing rate of $30 per hour.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 08/31/1998 Date Modified: 10/10/2001

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