Is plumbing labor taxable in Kansas, and how are the materials and non-residential jobs treated?

Plain-English summary

A plumbing contractor asked how Kansas retailers' sales tax applies to residential and commercial plumbing. The Department drew a line: residential labor is exempt, but materials and non-residential labor stay taxable.

Residential plumbing labor is exempt. Under K.S.A. 79-3603(p) (enacted by 1998 Senate Bill No. 493, effective July 1, 1998), "services performed to install or apply tangible personal property are exempt from sales tax when the services involve the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence." The Department added that this "would include land improvements immediately surrounding the residence, such as the fountain or poolhouse," and that "[t]he mere fact that an exempt service is performed for a home association, would not subject the respective service to Kansas sales tax(es)." The Department construes "residence" in K.S.A. 79-3603(p)(4) to include the land improvements that immediately surround the residence.

Materials are always taxable. "The new law does not change the taxation of sales of materials and supplies that are purchased for use in residential or commercial plumbing." Those sales "continue to be subject to state and local sales tax," including "the plumbing fixtures and materials, plus any shipping and handling charges invoiced from the material supplier." So all materials are taxable at purchase, whether they end up at a residence or a commercial site.

Non-residential labor is still taxable. "[S]ales tax continues to apply to non-residential labor services, since the new exemption extends only to residences." The contractor must "continue collecting the appropriate Kansas sales tax(es) on all labor for non-residential jobs, unless the services are rendered in connection with the original construction of a building or a facility."

How the contractor pays and passes on the tax. The contractor pays Kansas state and local sales tax to an in-state retailer on materials; pays compensating (use) tax to a registered out-of-state retailer; or remits use tax directly to Kansas if the out-of-state seller is not registered. That tax "should be passed off to their customers as a cost of the material," and the contractor "would not be entitled to credit for any sales/use tax(es) paid on their material purchases."

Bottom line: plumbing labor for a residence is exempt; all materials and all non-residential labor remain taxable, and the contractor recovers the material tax by building it into its price, not by taking a credit.

What this means for you

Plumbing and mechanical contractors

Your labor on a residence (and its immediately surrounding land improvements) is exempt from Kansas sales tax. Your labor on commercial/non-residential jobs is taxable unless it is part of a building's original construction.

Materials are taxed no matter where they are used

Fixtures, pipe, and supplies - plus shipping and handling billed by your supplier - are taxable when you buy them, whether the job is residential or commercial. You are the consumer of those materials.

Build the material tax into your price - there's no credit

Pass the sales or use tax you paid on materials to the customer as a cost of the material. You cannot take a credit for the tax you paid on those purchases.

Common questions

Q: Is plumbing labor at a home taxable in Kansas?
A: No. Residential plumbing labor is exempt under K.S.A. 79-3603(p), including work on land improvements immediately surrounding the home.

Q: Are the plumbing materials taxable?
A: Yes. Materials and supplies - including fixtures and any shipping and handling - are taxable when purchased, whether used at a residence or a commercial site.

Q: Is labor on a commercial plumbing job taxable?
A: Yes, unless the work is done in connection with the original construction of a building or facility.

Q: Can the contractor take a credit for the tax it paid on materials?
A: No. The contractor passes that tax to the customer as a cost of the material and is not entitled to a credit for it.

Citations and references

• K.S.A. 79-3603(p) - imposes sales tax on the service of installing or applying tangible personal property, but exempts such services performed in connection with the original construction of a building or facility or the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence (enacted by 1998 Senate Bill No. 493, effective July 1, 1998). Materials and non-residential labor remain taxable.
• K.S.A. 79-3603(p)(4) - the Department construes "residence" to include the land improvements that immediately surround the residence, making the residential exemption coextensive with the original-construction exemption.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-042

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 14, 2001

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RE: TTTTTTTTTTTTTTTTTTTT

Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated April 25, 2001, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 2000 Supp. 79-3603(p) (1998 Senate Bill No. 493) exempts certain construction services that were formerly subject to Kansas sales tax. Effective July 1, 1998, services performed to install or apply tangible personal property are exempt from sales tax when the services involve the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence. This would include land improvements immediately surrounding the residence, such as the fountain or poolhouse. The mere fact that an exempt service is performed for a home association, would not subject the respective service to Kansas sales tax(es).

K.S.A. 79-3603(p) imposes a sales tax upon: “the gross receipts received for the service of installing or applying tangible personal property which when installed or applied is not being held for sale in the regular course of business, and whether or not such tangible personal property when installed or applied remains tangible personal property or becomes a part of real estate, except that no tax shall be imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building or facility, the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence or the construction, reconstruction, restoration, replacement, remodeling, restoration, renovation or reconstruction, restoration, replacement or repair of a bridge or highway. . .”

The department will construe the term ‘residence’ in K.S.A. 79-3603(p)(4) to include the land improvements that immediately surround the residence. This means the exemption for residential repair and remodeling services generally will be coextensive with the exemption for the original construction of the residence.

The new law does not change the taxation of sales of materials and supplies that are purchased for use in residential or commercial plumbing. These sales continue to be subject to state and local sales tax. This would include, but not be limited to the plumbing fixtures and materials, plus any shipping and handling charges invoiced from the material supplier.. Similarly, sales tax continues to apply to non-residential labor services, since the new exemption extends only to residences. Repair, maintenance, installation and application services remain subject to sales tax when done to tangible personal property.

It is the opinion of the Kansas Department of Revenue that plumbing labor services would not be subject to sales tax, if the labor services rendered are for a residence. All materials would be subject to the appropriate Kansas sales/use tax at the time of purchase, whether the respective materials are used at a residence or a commercial site. Additionally, your company would be obligated to continue collecting the appropriate Kansas sales tax(es) on all labor for non-residential jobs, unless the services are rendered in connection with the original construction of a building or a facility.

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.

The sales and compensating tax paid by your client should be passed off to their customers as a cost of the material. Therefore, your client would not be entitled to credit for any sales/use tax(es) paid on their material purchases.

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: 05/15/2001 Date Modified: 10/11/2001

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