Do contractors pay Kansas sales or use tax on the materials and supplies they buy for construction and repair work?

Plain-English summary

A taxpayer asked how Kansas sales and compensating (use) tax applies to a contractor's purchases of materials and supplies. The Department confirmed the contractor is the taxable consumer of those materials.

Contractors are taxed on their materials. Under K.S.A. 79-3603b(l), Kansas imposes sales tax on "the gross receipts received from the sales of tangible personal property to all contractors, subcontractors or repairmen of materials and supplies for use by them in erecting structures for others, or building on, or otherwise improving, altering, or repairing real or personal property of others." In other words, when a contractor buys materials to build or repair property for a customer, that purchase is taxable to the contractor.

How the contractor pays, depending on the seller. The Department laid out three situations:

• Buying from an in-state retailer: the contractor "must pay the retailer the appropriate Kansas state and local sales tax."
• Buying from a registered out-of-state retailer: the contractor "must pay the retailer the compensating (use) tax."
• Buying from an unregistered out-of-state retailer: the contractor "must remit the compensating (use) tax directly to the state of Kansas."

Bottom line: a contractor is the final consumer of its construction materials and owes Kansas tax on them - sales tax on Kansas purchases, and compensating (use) tax on out-of-state purchases (paid to a registered seller or remitted directly).

What this means for you

Contractors, subcontractors, and repairmen

You are the taxable consumer of the materials and supplies you buy to build, improve, alter, or repair property for your customers. Plan to pay Kansas tax on those purchases rather than treating them as tax-free resale items.

Match the tax to where you buy

Pay Kansas sales tax to an in-state supplier; pay compensating (use) tax to a registered out-of-state supplier; and if your out-of-state supplier is not registered with Kansas, remit the use tax directly to the Department yourself.

Build the tax into your bid

Because the material tax falls on you as the consumer, factor it into your project pricing - it is a cost of doing the work, recovered through your price to the customer.

Common questions

Q: Do contractors pay Kansas tax on the materials they buy?
A: Yes. Under K.S.A. 79-3603b(l), sales of materials and supplies to contractors, subcontractors, and repairmen for construction and repair work are taxable to the contractor.

Q: What if the contractor buys from out of state?
A: The contractor pays compensating (use) tax - to the out-of-state retailer if it is registered with Kansas, or directly to the Department if the retailer is not registered.

Q: Can the contractor buy the materials tax-free for resale?
A: No. The contractor is treated as the consumer of the materials it uses to improve or repair others' property, so those purchases are taxable.

Citations and references

• K.S.A. 79-3603b(l) - imposes Kansas sales tax on sales of tangible personal property (materials and supplies) to contractors, subcontractors, or repairmen for use in erecting structures for others or building on, improving, altering, or repairing real or personal property of others. The contractor pays Kansas sales tax on in-state purchases and compensating (use) tax on out-of-state purchases (to a registered retailer, or remitted directly to Kansas if the retailer is unregistered).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-026

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

March 27, 2001

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Dear Ms. TTTTTTTTTT:

We wish to acknowledge receipt of your letter dated March 26, 2001, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3603b(l) imposes a sales tax upon: “the gross receipts received from the sales of tangible personal property to all contractors, subcontractors or repairmen of materials and supplies for use by them in erecting structures for others, or building on, or otherwise improving, altering, or repairing real or personal property of others. . .”

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: 03/30/2001 Date Modified: 10/11/2001

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