Can a business that repairs tangible personal property accept a resale exemption certificate on the repair services and parts it sells to other retailers?

Plain-English summary

A retailer/wholesaler of surveying, measuring, engineering, and construction instruments — which also calibrates, repairs, and maintains that equipment — asked whether it may accept a resale exemption certificate when it sells repair and maintenance services and parts to other retailers. Its concern came from tax materials stating that, in Kansas, resale exemption certificates may not be issued for services. The Department said that rule does not apply here, because the work is on tangible personal property, not real property.

The "no resale certificate for services" rule is about real-property work. Under K.A.R. 92-19-66b(a), each contractor, subcontractor, and repairman is responsible for collecting and remitting sales tax on taxable services performed for others, and may not issue or accept a resale exemption certificate for services bought from or sold to another contractor, subcontractor, or repairman. That regulation governs real property construction services.

Repairs to tangible personal property are different. The contractor rule does not apply when services are performed on tangible personal property. The Department gave examples: an auto dealership's repair shop may give a resale certificate to a specialty frame or wheel shop and then bill its own customer; a furniture refinisher may give a resale certificate to a cane weaver and then charge the customer tax on the full repaired-furniture bill.

So this business may accept resale certificates. Because the equipment it services is all tangible personal property, the company may accept a resale exemption certificate when it sells repair/maintenance services and parts to other retailers:

• Out-of-state retailers should provide a multi-state sales tax exemption certificate.
• In-state retailers should provide a Kansas resale exemption certificate.
• When another retailer provides a certificate, that retailer becomes responsible for collecting and remitting the sales tax from its own customers.

Government customers. When the company services equipment for exempt governmental entities (such as the federal government), the sale of services and parts is exempt if the entity provides an exemption certificate — and the purchase is paid for by the government entity's check or voucher.

Bottom line: the ban on resale certificates for services is limited to real-property contractors; a business repairing tangible personal property may take resale certificates from other retailers (shifting the tax-collection duty to them), and sales to exempt governments are exempt when properly certified and paid with government funds.

What this means for you

Repair shops working on tangible personal property

You are not caught by the real-property "no resale certificate for services" rule. When you perform repair or maintenance on tangible personal property for another retailer who will re-bill its customer, you may accept a resale exemption certificate and not charge that retailer tax — the retailer then collects tax from the end customer.

Match the certificate to the buyer

Take a Kansas resale certificate from in-state retailers and a multi-state exemption certificate from out-of-state retailers. Keep the certificate on file; it shifts the collection responsibility to the purchasing retailer.

Government sales need certificate plus government payment

A sale to an exempt governmental entity is exempt only when the entity gives you an exemption certificate and pays with its own check or voucher. Payment by an employee or third party (even if later reimbursed) can defeat the exemption.

Common questions

Q: Can a TPP repair business accept a resale certificate on services sold to other retailers?
A: Yes. The rule barring resale certificates for services applies to real-property contractors (K.A.R. 92-19-66b(a)), not to repairs of tangible personal property.

Q: What certificate should the buying retailer provide?
A: A Kansas resale exemption certificate for in-state retailers, or a multi-state sales tax exemption certificate for out-of-state retailers. That retailer then collects tax from its customers.

Q: When is a sale to a government entity exempt?
A: When the exempt governmental entity provides an exemption certificate and the purchase is paid for by the government entity's check or voucher.

Citations and references

• K.A.R. 92-19-66b(a) — makes each contractor, subcontractor, and repairman responsible for tax on taxable real-property services and bars issuing or accepting resale exemption certificates for those services; the Department held this rule does not extend to repairs of tangible personal property.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-072

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 17, 2001

XXXX
XXXX
XXXX

RE: You letter of May 18, 2001

Dear XXXX:

Thank you for your letter and follow-up letter. You describe the business practices for XXXX, and ask for a private letter ruling. Your initial concern was over tax service materials that suggested that, in Kansas, resale exemption certificates may not be issued for services. This rule is correct for contractors who do work to improve real property. However, it does not apply to businesses that charge customers for repair to tangible personal property.

K.A.R. 92-19-66b(a) states the rule for real property construction services:

Each contractor, subcontractor, and repairman shall be responsible for collecting and remitting sales tax on taxable services performed for others, including taxable services performed for other contractors. A contractor, subcontractor, or repairman shall not issue or accept a resale exemption certificate that claims an exemption from sales tax for services being purchased from or sold to another contractor, subcontractor, or repairman.”

Under this regulation, contractors, subcontractors and repairmen are each responsible for reporting sales tax on their services. They may not accept a resale exemption certificate from a general contractor to exempt their services from sales tax.

The rule for contractors does not apply when services are performed on tangible personal property. For example, an automobile dealership with a repair shop may give a resale certificate to a specialty shop, such as a frame straightening business or wheel shop, and then bill their customer for the work done by the frame or wheel shop. Similarly, a furniture refinishing business may provide a resale exemption certificate to a cane weaver, and then charge the customer sales tax on the total billing for a repaired chair or other piece of furniture.

XXXX is a retailer/wholesaler of surveying, measuring, engineering, and construction instruments and supplies. It performs calibration, repair, and maintenance services on the equipment that it sells at retail. XXXX typically charges sales tax on both parts and services when equipment is serviced and repaired. XXXX provides the same calibration, repair, and maintenance services to other retailers and dealers. This equipment is all tangible personal property.

You ask if XXXX may accept a resale exemption certificate when it sells repair and maintenance services and parts to other retailers. The answer is yes. In the case of out-of-state retailers, XXXX should require the retailer to provide a multi-state sales tax exemption certificate. In the case of in-state retailers, XXXX should require the retailer to provide a Kansas resale exemption certificate. When another retailer provides an exemption certificate, that retailer becomes responsible for collecting and remitting the appropriate sales tax from its customers.

In addition to servicing equipment for other retailers, XXXX services equipment for exempt governmental entities such as the federal government. In such cases, XXXX should require the governmental entity to provide an exemption certificate. When this is done, the sale or services and parts is exempt. Please note that to be exempt such sales must be paid for by check of voucher of the government entity.

I hope that this answers all of your questions. If my letter raised any new ones, please call me at 785-296-3081. 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,

Thomas E. Hatten

Attorney/Tax Specialist

Date Composed: 07/18/2001 Date Modified: 10/11/2001

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