Does Kansas tax labor and remodeling services, and which construction labor is exempt?

Plain-English summary

A taxpayer asked a plain question: does Kansas have a "Labor Tax" or a "Remodeling Tax," and does billing a consumer for such a tax violate any statute? The Department explained how Kansas actually taxes labor and construction services — some labor is taxed, but original construction and residential remodeling labor are exempt.

Kansas does tax labor on property — with key exclusions. Kansas taxes labor service to install, apply, alter, maintain, service, and repair tangible personal property, whether it remains personal property or is incorporated into real property. But there are exclusions: the first/initial construction of a building or facility, and the remodeling of a residence.

The 1998 law that exempted residential work. 1998 Senate Bill No. 493 (effective July 1, 1998) exempts services to install or apply tangible personal property when the work involves the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence.

The imposing statute, K.S.A. 79-3603(p). That statute imposes tax on the gross receipts for installing or applying tangible personal property, "except that no tax shall be imposed" for that service in connection with the original construction of a building or facility, the full range of residence construction/remodeling/repair work, or bridge or highway work. The Department also noted it construes "residence" in K.S.A. 79-3603(p)(4) to include the land improvements that immediately surround the residence, so the residential-service exemption is generally coextensive with the exemption for original construction of the residence.

What stays taxable. The law did not change the tax on materials and supplies for residential or commercial construction, maintenance, and repair — those remain subject to state and local sales tax. Non-residential labor services stay taxable (the exemption reaches only residences), and repair, maintenance, installation, and application services on tangible personal property remain taxable.

Bottom line: Kansas taxes installation/repair labor on property generally, but exempts original construction and residential construction/remodeling labor under 79-3603(p) (the 1998 SB 493 changes). Materials, non-residential labor, and TPP repair labor stay taxable.

What this means for you

Contractors and remodelers

Labor for the original construction of a building, and for the construction, remodeling, renovation, or repair of a residence, is exempt from Kansas sales tax under 79-3603(p). But commercial/non-residential labor and repairs to tangible personal property remain taxable — classify each job correctly.

"Residence" includes the surrounding land improvements

The Department reads "residence" in 79-3603(p)(4) to include the land improvements immediately surrounding the home, so qualifying residential work extends beyond the four walls. That makes the residential-service exemption roughly coextensive with the exemption for the home's original construction.

Materials are still taxable — and so is over-billing tax

Materials and supplies for any construction, maintenance, or repair remain subject to state and local sales tax. If a company bills a consumer sales tax on exempt residential labor, that tax is not due under the statute — so check that any "labor tax" charged actually reflects a taxable service, not exempt residential work.

Common questions

Q: Does Kansas have a labor tax or remodeling tax?
A: Kansas taxes installation, application, and repair labor on tangible personal property, but under 79-3603(p) it exempts original construction of a building and residential construction/remodeling labor (the 1998 SB 493 changes).

Q: Is residential remodeling labor taxable?
A: No. Residential construction, remodeling, renovation, and repair labor is exempt; the Department also treats the surrounding land improvements as part of the "residence."

Q: Are the materials exempt too?
A: No. Materials and supplies for residential or commercial construction, maintenance, and repair remain subject to state and local sales tax; only the qualifying labor is exempt.

Citations and references

• K.S.A. 79-3603(p) — imposes sales tax on the service of installing or applying tangible personal property, except in connection with original construction of a building/facility, residential construction/remodeling/repair, or bridge/highway work; the Department construes "residence" in 79-3603(p)(4) to include the immediately surrounding land improvements.
• 1998 Senate Bill No. 493 — effective July 1, 1998, exempts services to install or apply tangible personal property for the original construction, reconstruction, restoration, remodeling, renovation, repair, or replacement of a residence.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-065

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 22, 2001

XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated June 18, 2001.

In your letter you stated:

Does Kansas have either a Labor Tax or a Remodeling Tax?

If a Kansas company is billing a consumer for either of these taxes, does this violate any statute?

I would appreciate your answers being faxed to me tomorrow, Tuesday June 19.

Kansas taxes labor service to install, apply, alter, maintain, service and repair tangible personal property that remains tangible personal property or has been incorporated into real property. There are exclusions to the imposition. The first or initial construction of a building or facility or the remodeling of a residence. Allow to explain in detail.

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.

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 construction, maintenance and repair. These sales continue to be subject to state and local sales tax. 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.

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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