Are materials a contractor buys for a residential remodeling project subject to Kansas sales tax, and when is the tax due?

Plain-English summary

A contractor asked how Kansas sales tax applies to the materials it buys for residential remodeling. The Department's answer is short and firm.

Materials are taxable, because the contractor is the final user. "Material used by a contractor for a residential remodeling project shall be subject to sales tax. In the state of Kansas, contractors are deemed to be the final user of material in residential remodeling projects."

When the tax is due. "The taxing event shall be deemed to occur at the time a contractor purchases materials, or when a contractor/retailer removes material from inventory to perform a residential remodeling project. The taxable base subject to sales tax shall be the cost of the materials."

Practical takeaway from the ruling. "[T]he contractor shall pay the appropriate Kansas sales tax at the time of purchase on the materials, and a contractor/retailer shall accrue any applicable Kansas sales tax on the cost of the materials, when the respective materials are removed from inventory, to be used in a residential remodeling project."

Bottom line: a contractor doing residential remodeling pays sales tax on the cost of its materials — at purchase, or (if the contractor also sells at retail) by accruing the tax when it pulls the materials from inventory for the job. It does not buy those materials tax-free for resale.

What this means for you

The contractor consumes the materials — no resale exemption

Kansas treats a residential-remodeling contractor as the final user of its materials. That means the contractor cannot buy the materials tax-free for resale; the materials are taxed to the contractor.

Tax is measured by the cost of the materials

The taxable base is "the cost of the materials," not a marked-up price billed to the homeowner.

Pay at purchase, or accrue when pulled from inventory

If the contractor simply buys materials for the job, it pays the tax at the time of purchase. If the contractor is also a retailer and pulls materials out of its own inventory to do the remodel, it accrues (self-assesses) the tax on the cost of those materials at that point.

This is about materials, not the labor charge

The ruling addresses the materials the contractor consumes. It does not treat the contractor's remodeling as a retail sale of the materials to the customer.

Common questions

Can a contractor buy residential-remodeling materials tax-free for resale?
No. The contractor is the final user of the materials, so the materials are subject to sales tax.

What amount is taxed?
The cost of the materials.

When does the contractor owe the tax?
At the time it purchases the materials — or, for a contractor who is also a retailer, when it removes the materials from inventory to perform the project.

Does the contractor charge the homeowner sales tax on the materials?
The ruling treats the contractor as the consumer of the materials and taxes the materials to the contractor at cost, rather than as a resale to the homeowner.

Citations and references

• 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.
• The ruling states the governing rule in prose: a residential-remodeling contractor is the final user of its materials, the taxing event is the purchase (or removal from inventory by a contractor/retailer), and the taxable base is the cost of the materials. No numbered statute is cited.
• Issued August 24, 1998 by Thomas P. Browne, Jr., Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-95

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 24, 1998

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Dear Mr. TTTTTTTT:

We wish to acknowledge receipt of your letter dated August 18, 1998, regarding the application of Kansas Retailers’ Sales tax.

This is a private letter ruling pursuant to K.A.R. 92-19-59.

Material used by a contractor for a residential remodeling project shall be subject to sales tax. In the state of Kansas, contractors are deemed to be the final user of material in residential remodeling projects. The taxing event shall be deemed to occur at the time a contractor purchases materials, or when a contractor/retailer removes material from inventory to perform a residential remodeling project. The taxable base subject to sales tax shall be the cost of the materials.

In closing, the contractor shall pay the appropriate Kansas sales tax at the time of purchase on the materials, and a contractor/retailer shall accrue any applicable Kansas sales tax on the cost of the materials, when the respective materials are removed from inventory, to be used in a residential remodeling project.

This response private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling.

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: 09/03/1998 Date Modified: 10/11/2001

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