How does a contractor owe Kansas state, local, and use tax on materials and supplies it buys in- and out-of-state?

Plain-English summary

A contractor asked how Kansas sales and use tax applies to the materials and supplies it buys. The Department laid out three situations that turn on where the sale happens and whether the seller collects Kansas tax.

Local tax is sourced to the seller's location. "Local sales tax is due based on where the sale is consummated. Sales are considered to be consummated at the retailer's place of business." So the local rate that applies is the rate at the store, not necessarily the job site.

In-state purchases — pay the retailer state + local tax. "When a contractor purchases materials and supplies from an in-state retailer, the contractor must pay the retailer the appropriate Kansas state and local sales tax." The contractor is the taxable consumer of its materials and pays at the register.

Out-of-state purchases — compensating (use) tax. "When a contractor purchases materials and supplies from an out-of-state retailer who is registered to collect the compensating (use) tax for the state of Kansas, the contractor must pay the retailer the compensating (use) tax." And "[i]f the out-of-state retailer is not registered with Kansas for compensating (use) tax purposes, the contractor must remit the compensating (use) tax directly to the state of Kansas."

Bottom line: contractors bear tax on their materials no matter where they buy — Kansas state and local sales tax when the seller is in Kansas, and Kansas compensating (use) tax when the seller is outside Kansas (paid to the seller if it is registered, otherwise self-remitted to the Department).

What this means for you

Construction contractors

Treat yourself as the final consumer of your materials and supplies. Buying in Kansas, expect to pay state plus the local rate at the seller's location. Buying from out of state, you still owe Kansas compensating (use) tax — either collected by a registered out-of-state seller or remitted by you directly if the seller isn't registered.

Don't skip use tax on out-of-state buys

A common exposure is assuming out-of-state purchases are tax-free because no Kansas tax was charged. If the seller isn't registered with Kansas, you must self-report and remit the compensating (use) tax. Keep records of out-of-state material purchases to support your use-tax filings.

Local rate follows the store, not the job

Because local sales tax is sourced to the retailer's place of business, the local rate on your materials is the seller's rate. That can differ from the local rate where the project is located.

Common questions

Q: Does a contractor pay Kansas sales tax on materials?
A: Yes. Buying from an in-state retailer, "the contractor must pay the retailer the appropriate Kansas state and local sales tax" — the contractor is the consumer of the materials.

Q: What about materials bought out of state?
A: The contractor owes Kansas compensating (use) tax: paid to a registered out-of-state retailer, or remitted "directly to the state of Kansas" if the retailer is not registered.

Q: Which local rate applies?
A: The rate where the sale is consummated — "the retailer's place of business" — not necessarily the job-site rate.

Citations and references

• Local-tax sourcing rule — Kansas local sales tax is due where the sale is consummated, i.e., the retailer's place of business; the ruling applies this general rule rather than a single cited statute.
• Kansas compensating (use) tax — a contractor buying materials from an out-of-state retailer owes Kansas use tax, collected by a registered seller or self-remitted to the Department if the seller is not registered.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-184

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

August 6, 1999

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Dear Mr. TTTT:

We wish to acknowledge receipt of your letter dated May 6, 1999, regarding the application of Kansas Retailers’ Sales tax.

Local sales tax is due based on where the sale is consummated. Sales are considered to be consummated at the retailer’s place of business. When a contractor purchases materials and supplies from an in-state retailer, the contractor must pay the retailer the appropriate Kansas state and local sales tax. When a contractor purchases materials and supplies from an out-of-state retailer who is registered to collect the compensating (use) tax for the state of Kansas, the contractor must pay the retailer the compensating (use) tax. If the out-of-state retailer is not registered with Kansas for compensating (use) tax purposes, the contractor must remit the compensating (use) tax directly to the state of Kansas.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It 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 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: 09/10/1999 Date Modified: 10/11/2001

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