Does a Kansas company owe sales tax on an internet-based, downloadable legal-information newsletter sold issue by issue?

Plain-English summary

A Kansas corporation asked whether it owes sales tax on an internet-based, on-line legal-information resource it publishes "in newsletter format." The newsletters "are available for purchase on the internet," "will be downloadable at the option of the purchaser," and "simply discuss legal topics in a general manner for educational and entertainment purposes" — they "do not, and do not intend to provide professional or legal advice." Each issue is "purchased individually," with "[n]o multi-issue subscriptions" offered, sold "solely on the internet through an appropriate E-commerce company."

How Kansas decides. The Department applies "a two step analysis": first, whether the sales tax act "generally imposes tax on the type of transaction in question"; second, whether "the act provides an exemption for the particular type of transaction." The controlling rule for the first step: "sales tax is imposed on all transactions involving the transfer of tangible personal property. With services, however, tax is imposed only on those transactions which are specifically enumerated in the sales tax act."

The holding. The Department "concluded the service you describe is not subject to the Kansas state sales tax or local sales taxes," because "the type of service you describe has not been enumerated in the sales tax act as a service which is subject to tax." In other words, the Department treated the downloadable newsletter as a service, and because Kansas had not listed that kind of service among its taxable services, the sale is not taxed.

The catch — the seller still pays tax on its inputs. The Department warned that the company "must pay sales tax on all articles of tangible personal property and all services purchased by them in Kansas which enable them to provide the nontaxable service." This is the standard Kansas rule for a nontaxable-service provider: you don't collect tax from your customers, but you are the taxable consumer of what you buy to run the business.

Bottom line: the online legal newsletter is a non-enumerated service, so no Kansas sales tax is due on its sale — but the publisher owes sales tax on the equipment, supplies, and taxable services it buys in Kansas to produce it.

What this means for you

Online publishers and information services

If you sell an on-line information product that Kansas treats as a non-enumerated service, you generally do not collect Kansas sales tax on the sale. But do not assume every digital sale is untaxed — the treatment turns on whether Kansas classifies your offering as a nontaxable service or as taxable tangible personal property, and the sales tax act has been amended over the years.

The input-tax trap

Even when your sale is nontaxable, you are the final consumer of everything you buy in Kansas to provide the service — computers, software, office supplies, and taxable services. Expect to pay sales (or use) tax on those purchases, and budget for it.

Why this ruling is narrow

This 1999 ruling rests on the newsletter being a service that had not been enumerated as taxable at that time. Kansas has since changed how it taxes some digital and electronically delivered products, so a similar product today should be re-checked against current law rather than relying on this letter.

Common questions

Q: Did the company have to collect Kansas sales tax on its online newsletter?
A: No. The Department ruled the newsletter service "is not subject to the Kansas state sales tax or local sales taxes" because it "has not been enumerated in the sales tax act as a service which is subject to tax."

Q: Why is a service not taxed when tangible goods are?
A: Kansas taxes "all transactions involving the transfer of tangible personal property," but taxes services "only on those transactions which are specifically enumerated in the sales tax act." A service that is not on the enumerated list is not taxed.

Q: If the sale isn't taxed, does the company owe any Kansas sales tax at all?
A: Yes — on its inputs. It "must pay sales tax on all articles of tangible personal property and all services purchased by them in Kansas which enable them to provide the nontaxable service."

Citations and references

• K.S.A. 79-3603 (Kansas Retailers' Sales Tax Act) — imposes tax on transfers of tangible personal property and on specifically enumerated services; the framework for the Department's two-step analysis. The ruling turns on the newsletter being a service not enumerated as taxable, so no single exemption subsection is cited.
• Nontaxable-service-provider rule — a provider of a service Kansas does not tax is the taxable consumer of the tangible personal property and taxable services it buys in Kansas to provide that service, and owes sales or use tax on those purchases.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-208

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 1, 1999

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear XXXXX:

Your correspondence of September 8, 1999, has been referred to me for response. Thank you for your inquiry.

By your letter you request our advice concerning your client, XXXXX. Your letter states, in pertinent part:

XXXXX is a Kansas corporation. It is engaged in the production of an internet based on-line legal information resource presented in newsletter format. The newsletters are available for purchase on the internet. They are called XXXX XXXX XXXX XXXX. There will ultimately be a series of newsletters which will address a variety of legal topics. The newsletters do not, and do not intend to provide professional or legal advice on any matter. The newsletters will be downloadable at the option of the purchaser. These newsletters simply discuss legal topics in a general manner for educational and entertainment purposes. It is intended that these newsletters will be published periodically and made available for purchase solely on the internet through an appropriate E-commerce company which provides merchant account services, real-time authorization and funds transfer. Each issue will be purchased individually. No multi-issue subscriptions will be made available.

In deciding whether a particular transaction is subject to sales tax, a two step analysis is generally necessary. The first step is to determine whether the sales tax act generally imposes tax on the type of transaction in question. The second step is to determine whether the act provides an exemption for the particular type of transaction.

As a rule, sales tax is imposed on all transactions involving the transfer of tangible personal property. With services, however, tax is imposed only on those transactions which are specifically enumerated in the sales tax act. Exemptions for transactions involving either tangible personal property or services are allowed as specifically enumerated.

After reviewing the information provided in your letter, we have concluded the service you describe is not subject to the Kansas state sales tax or local sales taxes. This determination is based on our belief that the type of service you describe has not been enumerated in the sales tax act as a service which is subject to tax. Your client should be aware, however, that they must pay sales tax on all articles of tangible personal property and all services purchased by them in Kansas which enable them to provide the nontaxable service.

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.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

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

Table 1

Table 2