Are the gross receipts from a statistical tank-and-line testing service for underground storage tanks subject to Kansas sales tax?

Plain-English summary

A company that provides a statistical form of tank and line testing for underground storage tanks — for service stations, airports, and others required to test their tanks — asked whether its receipts are subject to Kansas sales tax. In practice, it takes the customer's data (Form 1), runs it through a computer program, and sends back the results (Form 2). The Department ruled the service is not taxable.

How Kansas decides. The Department applied its usual two-step test: first, does the sales-tax act generally impose tax on this type of transaction; second, is there an exemption? Sales of tangible personal property are generally taxable, but services are taxed only when specifically enumerated in the act.

No imposition on this service. The Department concluded that "no imposition exists in the law to impose Kansas sales tax on the services as described in this letter." The statistical tank-and-line testing service is not an enumerated taxable service, so the receipts are not taxed.

The provider pays tax on its own purchases. The company must pay Kansas sales and compensating taxes on all purchases of tangible personal property and taxable services it uses or consumes in the business — it is the consumer of its inputs.

Bottom line: a statistical tank-and-line testing service is a nontaxable service in Kansas (no statutory imposition), but the provider still owes sales/use tax on the goods and taxable services it buys to operate.

What this means for you

Testing, inspection, and data-analysis service providers

If your service is not one of Kansas's specifically enumerated taxable services — here, statistical analysis of tank-testing data delivered back to the customer — your receipts are not subject to Kansas sales tax. Enumeration is the key: Kansas taxes services only when the statute names them.

You are the consumer of your inputs

A nontaxable service provider pays sales or compensating (use) tax on the tangible personal property and taxable services it buys to run the business — computers, software, supplies, and the like. You cannot buy those inputs for resale.

Watch for bundled taxable elements

The result here rested on the service being pure data analysis returned to the customer. If a service also transfers taxable tangible personal property or bundles in an enumerated taxable service, the analysis — and the tax outcome — can change.

Common questions

Q: Is a statistical tank-and-line testing service taxable in Kansas?
A: No. The Department found no imposition in the law to tax the service as described — statistical analysis of underground-storage-tank data returned to the customer.

Q: Why isn't it taxable?
A: Kansas taxes services only when they are specifically enumerated in the sales-tax act, and this service is not enumerated.

Q: Does the company owe any tax at all?
A: Yes — on its own purchases. It must pay Kansas sales and compensating taxes on the tangible personal property and taxable services it uses or consumes in the business.

Citations and references

• The Department did not cite a specific statutory section. Its conclusion rests on the general Kansas rule that services are taxed only when specifically enumerated in the sales-tax act — and the statistical tank-and-line testing service is not enumerated, so no imposition reaches it and the receipts are not taxable.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-070

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 3, 2001

XXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX

Dear XXXXXXXXXXXX:

The purpose of this letter is to respond to your letter received by this office on June 22, 2001. In it, you ask if the gross receipts from a statistical form of tank and line testing service are subject to Kansas retailers’ sales tax.

In deciding whether a particular transaction is subject to sales tax, a two step analysis is generally necessary. The first step is to determine whether the sales tax act generally imposes tax on the type of transaction in question. The second step is to determine whether the act provides an exemption for the particular type of transaction.

As a rule, sales tax is imposed on all transactions involving the transfer of tangible personal property. With services, however, tax is imposed only on those transactions that are specifically enumerated in the sales tax act. Exemptions for transactions involving either tangible personal property or services are allowed as specifically enumerated.

In your letter you stated:

We provide a statistical form of tank an line testing for service stations, airports and any other person or company who has underground storage tanks that are required to be tested. I would like a private letter ruling on the sales tax issues. Attached are examples of this service.

We take the data from form 1, run it through a computer program and send them back the results on Form 2.

It is the opinion of the Department that no imposition exists in the law to impose Kansas sales tax on the services as described in this letter.

Your Company is required to pay Kansas sales and compensating taxes on all purchases of tangible personal property and taxable services used or consumed by their business.

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: 07/06/2001 Date Modified: 10/11/2001

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