Does the Kansas sales tax exemption for restoring fire- or flood-damaged buildings depend on whether the cause was natural or man-made?

Plain-English summary

A representative asked, on behalf of a client, how the Kansas exemption for restoring damaged buildings applies when damage comes from natural versus man-made causes.

The exemption. Quoting "Kansas Administrative Regulation 92-19-66(b), subsection (g)," the letter states: "Sales tax shall not be imposed on the service of installing or applying tangible personal property for the purpose of restoring, reconstructing, or replacing a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion, or earthquake. This exemption shall not apply to restoration, reconstruction, or replacement of a building or facility due to normal deterioration resulting from the continuous exposure to the elements, or the obsolescence of the building or facility."

The interpretive rule. Because "[t]he Kansas retailers' sales tax act does not define 'fire' or 'flood,'" the Department applied strict construction — giving the words "their ordinary and plain meaning." It quoted Black's Law Dictionary: "Fire" means "[t]he effect of combustion," and "Flood" means "[a]n inundation of water over land not usually covered by it. Water which inundates an area of earth where it ordinarily would not be expected to be."

Fire — cause doesn't matter. "If damage is caused by 'fire', it is immaterial as to how the 'fire' occurred." A fire from an act of God (lightning) or from a human/mechanical defect (faulty wiring) is treated the same, and the restoration is exempt.

Flood — only a true flood qualifies. A "flood" can arise from an act of God or from failure of a man-made structure, and repairing that damage is within the exemption. But "not all damages that occur by the presence or action of water are within the meaning of this word." Specifically, "[t]he service to repair damages that are the result of a broken water pipe (mechanical failure) or rain leaking through a roof ('Act of God') are not exempt. Only damages caused by a 'flood' qualify for the exemption."

Bottom line: the exemption turns on the peril, defined by its ordinary meaning — not on whether the cause was natural or man-made. Any fire qualifies; only water damage that is genuinely a flood qualifies, so ordinary pipe bursts and roof leaks do not.

What this means for you

Restoration and construction contractors

Installation labor to restore a building damaged by fire, flood, tornado, lightning, explosion, or earthquake is exempt from Kansas sales tax — but not restoration for normal wear or obsolescence. Confirm the loss fits one of the listed perils by its ordinary meaning before treating your labor as exempt.

Water-damage jobs need a real "flood"

Not all water damage qualifies. Damage from a burst pipe or a leaking roof is not "flood" damage and its restoration labor is taxable. Reserve exempt treatment for an actual inundation of water over land not usually covered by it.

Fire jobs — don't overthink the cause

For fire losses, how the fire started is irrelevant: lightning, faulty wiring, or any other cause all qualify. The restoration labor is exempt so long as the damage was caused by fire.

Common questions

Q: Is restoration labor after a fire taxable in Kansas?
A: No. Installing or applying tangible personal property to restore a fire-damaged building is exempt under K.A.R. 92-19-66(b), and "it is immaterial as to how the 'fire' occurred."

Q: Is all water-damage repair exempt?
A: No. Only damage from an actual "flood" qualifies. "[D]amages that are the result of a broken water pipe . . . or rain leaking through a roof . . . are not exempt."

Q: What losses does the exemption not cover?
A: Restoration due to "normal deterioration resulting from the continuous exposure to the elements, or the obsolescence of the building or facility" is not exempt, even if the work is otherwise the same.

Citations and references

• K.A.R. 92-19-66(b) — provides that sales tax is not imposed on installing or applying tangible personal property to restore, reconstruct, or replace a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion, or earthquake, but not for normal deterioration or obsolescence; the exemption the Department construed.
• Black's Law Dictionary (ordinary meaning of "fire" and "flood") — because the sales tax act does not define these terms, the Department applied their plain meanings, treating any fire as qualifying but limiting water damage to a true "flood."

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-176

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

August 16, 1999

XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX

Dear XXXXXXXX:

I have been asked to respond to your letter dated July 1, 1999. In it, you request a private letter ruling on behalf of your client XXXXXXXXXXXX.

In your letter you stated:

The area that needs clarification deals with services performed to install or apply tangible

Personal property for the purpose of restoring, reconstructing or replacing a building or facility damaged or destroyed.

According to Kansas Administrative Regulation 92-19-66(b), subsection (g) “Sales tax shall not be imposed on the service of installing or applying tangible personal property for the purpose of restoring, reconstructing, or replacing a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion, or earthquake. This exemption shall not apply to restoration, reconstruction, or replacement of a building or facility due to normal deterioration resulting from the continuous exposure to the elements, or the obsolescence of the building or facility.”

Specifically, does the above definition of “destroyed by fire, flood . . .” apply in situations where the damage or destruction is due to natural occurrences (acts of God) and in situations where the damage or destruction is due to human or mechanical causes? If there is a distinction made what is the criteria for making the distinction?

In the incident of fire, we have received verbal information by the Department of Revenue that no distinction is between fire caused by an act of God (lightning) and fire caused by human or mechanical defect (faulty wiring), so all fire incidents are exempt.

The rule of strict construction means that ordinary words are given their ordinary meaning. The Kansas retailers’ sales tax act does not define “fire” or “flood”. Therefore, the meaning imparted to these words must be their ordinary and plain meaning.

Black’s Law Dictionary defines fire and flood as follows: “Fire” means “[t]he effect of combustion.” “Flood” means “[a]n inundation of water over land not usually covered by it. Water which inundates an area of earth where it ordinarily would not be expected to be.”

If damage is caused by “fire”, it is immaterial as to how the “fire” occurred. In other words, “fire” caused by and “Act of God” or by any other means is, for purposes of the exemption, the same.

Likewise, if damage is the result of a “flood” that occurs by an “Act of God” or by failure of a manmade device or structure, repair of said damage is within the exemption. Taking into account the definition of “flood” not all damages that occur by the presence or action of water are within the meaning of this word. The service to repair damages that are the result of a broken water pipe (mechanical failure) or rain leaking through a roof (“Act of God”) are not exempt. Only damages caused by a “flood” qualify for the exemption.

This 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 make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC: mdc

Date Composed: 08/26/1999 Date Modified: 10/11/2001

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