Can an out-of-state county claim a Kansas sales-tax exemption on goods it takes delivery of in Kansas?

Plain-English summary

A Kansas company sells asphalt emulsion from its Arkansas City plant. A Missouri county buys it, and the county's employees take delivery in Kansas. The county thought it was exempt because it is a Missouri political subdivision. The Department's answer is no — the sale is taxable in Kansas.

Where the sale happens controls. The Department explained that a sale "almost always occurs at the time that physical possession of the item being sold is transferred to the buyer," consistent with the Uniform Commercial Code: a "'sale' consists of the passing [of] title from the seller to the buyer for a price" (K.S.A. 84-2-106), and title passes "at the time and place at which the seller completes his performance with reference [to] the physical delivery of the goods" (K.S.A. 84-2-401(2)(a)(2)). Because the county takes possession in Kansas, the sale takes place wholly within Kansas and is taxable — "notwithstanding that the buyer may subsequently transport the property out of this state."

Kansas's exemption is for Kansas governments only. The governmental exemption reaches property "purchased directly by the state of Kansas, a political subdivision thereof ... or ... a public or private nonprofit hospital" and used for those purposes. The Department pointed to its own Publication KS-1527 ("Sales and Use Tax for Kansas Political Subdivisions"), which states in a footnote: "Political subdivisions of other states are not exempt from Kansas Retailers' Sales Tax." The Department noted it has consistently held that a delivery in Kansas to another state's entity is taxable even if the buyer's home state would exempt it.

How to avoid it. The Department pointed out the fix: if the entity does not take delivery in Kansas but has the item shipped to its home state, Kansas does not tax the transaction. So the Kansas vendor can mail or ship the goods to Missouri on its own vehicles.

The tax is a debt owed to the seller. Under K.S.A. 79-3604, sales tax is a debt from the consumer to the retailer, so the Department observed the seller could pursue the Missouri county in Kansas courts for the tax due.

Bottom line: an out-of-state government is not exempt in Kansas when it picks the goods up here. The exemption tracks Kansas governments; the way to keep an interstate sale untaxed is to ship to the buyer's state, not to hand goods over in Kansas.

What this means for you

Kansas sellers to out-of-state governments and buyers

Do not accept an out-of-state government's home-state exemption for an in-Kansas pickup. If the buyer or its employees take possession in Kansas, charge Kansas tax. The safe way to sell tax-free across the line is to deliver or ship the goods to the buyer's state yourself or by carrier/mail.

The exemption is about Kansas, not "government" generally

Kansas's direct-purchase exemption is limited to the State of Kansas and its political subdivisions (plus qualifying hospitals and blood/tissue/organ banks). A county, city, or agency of another state gets no Kansas exemption — Publication KS-1527 says so in as many words.

Collect the tax — it's your debt to recover

Because sales tax is a debt owed to the retailer (K.S.A. 79-3604), a seller that fails to collect can be left pursuing the buyer. Build the tax into the invoice on any in-Kansas delivery to an out-of-state buyer, rather than relying on a home-state exemption that Kansas does not honor.

Common questions

Q: Is a Missouri county exempt from Kansas sales tax on goods it picks up in Kansas?
A: No. The Department ruled the sale is taxable in Kansas because possession transfers in Kansas; other states' political subdivisions are not exempt here.

Q: Why does taking delivery in Kansas matter?
A: A sale occurs where physical possession/title passes. Delivery in Kansas makes the sale a wholly-Kansas transaction, taxable even if the buyer then hauls the goods to another state.

Q: How can the transaction avoid Kansas tax?
A: The Kansas vendor can ship or mail the goods to the buyer's home state so the buyer does not take delivery in Kansas.

Q: Who owes the uncollected tax?
A: Sales tax is a debt from the consumer to the retailer (K.S.A. 79-3604); the seller may pursue the buyer for tax due and owing.

Citations and references

• K.S.A. 84-2-106 — UCC definition: a "sale" consists of the passing of title from seller to buyer for a price.
• K.S.A. 84-2-401(2)(a)(2) — title passes when and where the seller completes performance with reference to physical delivery of the goods.
• K.S.A. 79-3604 — Kansas sales tax is a debt from the consumer or user to the retailer.
• Publication KS-1527 ("Sales and Use Tax for Kansas Political Subdivisions") — footnote: political subdivisions of other states are not exempt from Kansas Retailers' Sales Tax.
• Montgomery Ward & Co. v. Commission of Revenue and Taxation, 156 Kan. 408, 133 P.2d 1008 (1943) — cited on the taxability of an in-state sale despite the buyer's out-of-state use.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-135

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 14, 2001

XXXX
XXXX
XXXX

RE: Your E-mail of November 14, 2001

Dear XXXX:

Thank you for your recent e-mail. You ask if XXX County, Missouri may claim a Kansas sales tax exemption on purchases of asphalt emulsion from AAA's Arkansas City plant. The employees of the Missouri county takes delivery at Arkansas City. The answer is no. XXX County may not claim exemption from Kansas sales tax when purchases are delivered to their employees in Kansas.

For sales tax purposes, a sale almost always occurs at the time that physical possession of the item being sold is transferred to the buyer. This is consistent with the UCC: "A 'sale' consists of the passing or title from the seller to the buyer for a price. . . ." K.S.A. 84-2-106. K.S.A. 84-2-401(2)(a)(2) directs "Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference with the physical delivery of the goods. . . ." These provisions are consistent with the regulation that instructs that when delivery of goods to the buyer is made in Kansas, the transaction subject to Kansas sales:

(a) When tangible personal property is sold within the state and the seller is obligated to deliver it to a point outside the state or to deliver it to a carrier or to the mails for transportation to a point without the state, the retail sales tax does not apply: Provided, The property is not returned to a point within this state. . . .
(c) . . . .However, where tangible personal property pursuant to a sale is delivered in this state to the buyer or his agent other than a common carrier, the sales tax applies, notwithstanding that the buyer may subsequently transport the property out of this state.

The Kansas retailers sales tax act clearly taxes retail sales where delivery is made to the buyer within the Kansas boarder. See e.g. Ex parte Dixie Tool & Die Co., Inc., 537 So. 2d 923 (Ala. 1998). As the regulation implies, it makes no difference that someone enters another state, buys something with the intent to return to their home state and use the item purchase there exclusively, and then return with their purchase to their home state. See Montgomery Ward & Co. v. Commission of Revenue and Taxation, 156 Kan. 408, 414, 133 P.2d 1008 (1943).

The Kansas sales tax act governs how sales tax applies to this transaction since the sale takes place wholly within Kansas. Apparently, XXX County, Missouri, believe it is exempt because it is a political subdivision of the State of Missouri. However, the Kansas exemption is limited to:

all sales of tangible personal property or service, including the renting and leasing of tangible personal property, purchased directly by the state of Kansas, a political subdivision thereof, other than a school or educational institution, or purchased by a public or private nonprofit hospital or public hospital authority or nonprofit blood, tissue or organ bank and used exclusively for state, political subdivision, hospital or public hospital authority or nonprofit blood, tissue or organ bank purposes. . . .

This policy is reflected in an information guide on "Sales and Use Tax for Kansas Political Subdivisions.," Publication KS-1527(Rev. 11/00), in a foot note on the first page of text:

*Political subdivisions of other states are not exempt from Kansas Retailers' Sales Tax.

The department of revenue has consistently held that when delivery is made in Kansas to an entity of another state, the sale is subject to Kansas sales tax even though the same purchase is exempted by the laws in the entity's home state. The department has also pointed out that if the entity does not take delivery in Kansas but has the sales item shipped to the home state, Kansas does not tax the transaction. Thus, for most sales, the problem can be avoided by having the Kansas vendor either mail the item being purchased to the buyer or by the Kansas vendor shipping the item being sold to the home state on its vehicles.

Under Kansas law, sales tax is a debt from the consumer or user to the retailer. K.S.A. 79-3604. This means that your company can pursue XXX County, Missouri, in Kansas courts for the tax that is due and owing your company. See e.g. State of Missouri, ex rel v. H. D. Lee Co., 174 Kan. 114, 254 P.2d 291 (1953).

I hope that I have answered all of your questions. If you need to discuss this matter further, please call me at 785-296-3081. This is private letter ruling. It 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 ruling.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 12/27/2001 Date Modified: 12/28/2001

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