Is an energy-loss testing service using thermography and current readings subject to Kansas sales tax?

Plain-English summary

A company asked whether its energy-loss testing service is subject to Kansas sales tax. The Department said it is not.

What the service is. The company performs "thermography and current readings in homes and businesses to detect areas of energy loss," which includes "taking pictures of buildings with heat sensitive instruments." It gives the client "a report that itemizes the findings and recommends changes to make the building more energy efficient." Importantly, it "will not sell or install materials or perform any repair or other services to the building or other property" — it only tests and reports.

Why it is not taxable. "The Kansas retailers' sales tax act imposes sales tax on sales of tangible personal property and on sales of certain enumerated services." Because "[t]he testing services that [the company] performs are not enumerated in the act," they "are not subject to sales tax." Kansas taxes services only when they are specifically listed; an energy-audit testing service is not on that list.

The reports are incidental. The Department addressed the tangible deliverables directly: "[t]he reports and pictures that [the company] provides to customers are incidental to the non-taxable service, and are similar to a lawyer providing a client with a will or an accountant providing a client with an audit report." Handing over a physical report does not convert the nontaxable service into a taxable sale of property.

The consumer-of-supplies rule. Because the service is nontaxable, "[the company] should pay tax on everything it buys and should not charge customers sales tax on billings for the service." The provider is the final consumer of its own equipment and supplies.

Bottom line: a testing/diagnostic service that is not an enumerated taxable service — here, thermographic energy-loss detection — is not taxable, even though the customer receives a written report. The provider pays tax on its inputs and does not charge customers.

What this means for you

Energy auditors and thermographic inspectors

Your testing and reporting service is not a taxable enumerated service, so do not charge customers Kansas sales tax on it. But pay sales or use tax on the cameras, instruments, and other supplies you buy — you are the final consumer of them.

Other diagnostic and testing businesses

If your service is not on the Kansas list of taxable enumerated services, it is generally nontaxable — and a physical report you hand the client is incidental, not a taxable sale of property. Confirm your specific service is non-enumerated.

Watch the line into taxable work

The ruling turned on the company not selling or installing materials or performing repairs. If you start selling products or doing taxable repair/installation work, that part of your business could be taxable even though the pure testing service is not.

Common questions

Q: Is a thermographic energy-loss testing service taxable in Kansas?
A: No. It is not an enumerated taxable service, so it is not subject to Kansas sales tax.

Q: Does giving the customer a written report or photos make it taxable?
A: No. The reports and pictures are incidental to the nontaxable service — comparable to a lawyer's will or an accountant's audit report — and do not turn it into a taxable sale of property.

Q: Who pays tax on the equipment and supplies?
A: The provider. Because the service is nontaxable, the company pays sales or use tax on everything it buys and does not charge customers sales tax on its billings.

Citations and references

• The ruling rests on the structure of the Kansas retailers' sales tax act, which taxes sales of tangible personal property and only certain enumerated services. It concludes the thermography/energy-testing service is not enumerated and therefore nontaxable, without citing a specific numbered K.S.A. subsection; the reasoning is described in prose above.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-214

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 4, 1999

XXXX
XXXX
XXXX

RE: Your letter of September 24, 1999

Dear XXXX:

Thank you for your letter that we received late last month. In it, you ask if services provided by XXXX Technology are subject to Kansas sales tax. The services are not subject to Kansas sales tax.

XXXX’s services involve performing thermography and current readings in homes and businesses to detect areas of energy loss. These services include taking pictures of buildings with heat sensitive instruments. XXXX provides its client with a report that itemizes the findings and recommends changes to make the building more energy efficient. XXXX will not sell or install materials or perform any repair or other services to the building or other property.

The Kansas retailers’ sales tax act imposes sales tax on sales of tangible personal property and on sales of certain enumerated services. The testing services that XXXX performs are not enumerated in the act and, therefore, are not subject to sales tax. The reports and pictures that XXXX provides to customers are incidental to the non-taxable service, and are similar to a lawyer providing a client with a will or an accountant providing a client with an audit report.

This means that XXXX should pay tax on everything it buys and should not charge customers sales tax on billings for the service. 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 by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination. If you have any additional question, please call me at (785) 296-3081.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

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

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