Is a federal government contractor's training service taxable in Kansas, and how does it buy parts and maintain federal equipment tax-free?

Plain-English summary

A primary federal government contractor asked about its Kansas sales/use tax liability. It wanted to be exempt from paying sales tax to vendors when buying parts on the government's behalf and to understand its use-tax exposure. As clarified by phone, the contractor's work was to train federal employees and to maintain equipment owned by the Federal government. The Department addressed the two activities separately.

Training services — not taxable. The Department concluded there is "no imposition exists in the law to impose Kansas sales tax on the training services provided to the Federal government." Training is not an enumerated taxable service, so those receipts are not taxed.

Equipment maintenance — use a project exemption certificate. For maintaining the federally owned equipment, the work "should be performed under a project exemption certificate." Crucially, the Federal agency — not the contractor — should apply for and obtain that certificate. The Department enclosed a copy of the application for the Federal agency to complete and submit to the Kansas Department of Revenue for approval. With the project exemption certificate in hand, the contractor can buy the parts/materials for the project without paying tax.

Bottom line: the contractor's federal-employee training is a nontaxable service, and its maintenance of federal equipment (including buying the parts) is handled tax-free through a project exemption certificate that the Federal agency obtains and provides for the project.

What this means for you

Federal government contractors

Pure training services you provide to the Federal government are not subject to Kansas sales tax. For maintenance or construction-type work on government-owned property, plan to work under a project exemption certificate so your project material purchases are exempt.

The agency must obtain the project exemption certificate

A key procedural point: the government agency, not the contractor, applies for and obtains the project exemption certificate. Coordinate early with your federal customer so the agency submits the application to the Kansas Department of Revenue and the certificate is in place before you buy parts.

Separate nontaxable services from purchased materials

The nontaxable treatment here is for the training service. Tax-free purchasing of parts and materials depends on the project exemption certificate — don't assume being a "government contractor" alone exempts your vendor purchases without that certificate.

Common questions

Q: Is a contractor's training service to the federal government taxable in Kansas?
A: No. The Department found no imposition in the law to tax the training services provided to the Federal government.

Q: How does the contractor buy parts and maintain federal equipment tax-free?
A: Under a project exemption certificate. The Federal agency must apply for and obtain that certificate, which the contractor then uses for the project.

Q: Can the contractor obtain the project exemption certificate itself?
A: No. The ruling directs the Federal agency to apply for and obtain the certificate and provide it for the contractor's project.

Citations and references

• The Department did not cite a specific statutory section. It concluded that no statutory imposition reaches the training services provided to the Federal government (a nontaxable service), and directed that maintenance of federally owned equipment be performed under a project exemption certificate obtained by the Federal agency.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-060

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 22, 2001

XXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Dear XXXXXX:

The purpose of this letter is to respond to your letter dated May 9, 2001. In it, you ask if purchases made by your company on behalf of the government are subject to Kansas retailers’ sales tax.

In your letter you stated:

XXXXXXXXXXX is seeking a letter ruling or letter of determinations regarding its sales/use tax liability in the state of Kansas. Enclosed are the contracts that bring into question XXXXXXXXX corporation tax liability.

XXXXXXXXXXX is a primary government contractor; therefore, the contract itself is quite thick. I have copied what I think the pertinent sections of the contract are to allow you to make the appropriate determination. XXXXXXXXX is seeking a letter ruling or letter of determination to exempt it from paying sales tax to vendors when purchasing parts on behalf of the government and to identify it's use tax liability.

I have emailed the state of Kansas requesting information about the sales/use tax liability and have received a few comments from a revenue agent but I would like a more formal statement regarding our tax liability. I have enclosed copies of the emails that have taken place thus far.

Per our telephone conversation, your company is engaged in a contract to train federal employees and to maintain equipment owned by the Federal government.

It is the opinion of the Department that no imposition exists in the law to impose Kansas sales tax on the training services provided to the Federal government.

The equipment maintenance should be performed under a projection exemption certificate. The Federal agency should apply and obtain this certificate for your company. I have enclosed a copy of the application to be filled out by the Federal agency and submitted to the Kansas Department of Revenue for approval.

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.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 06/26/2001 Date Modified: 10/11/2001

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