When does Kansas sales tax apply to store items delivered to in-state versus out-of-state buyers?

Plain-English summary

A jewelry store employee asked when Kansas sales tax applies to items delivered to in-state and out-of-state buyers. The Department's answer turns on where the buyer takes physical possession of the goods.

The rule: possession/delivery location controls. For Kansas sales tax purposes, a sale "almost always occurs at the time and place that physical possession … is transferred to the buyer." That tracks the UCC — a "sale" is the passing of title from seller to buyer for a price (K.S.A. 84-2-106), and unless otherwise agreed title passes where the seller completes physical delivery (K.S.A. 84-2-401). The sales-tax regulation K.A.R. 92-19-29 applies the same idea: when goods are delivered to the buyer in Kansas, the transaction is subject to Kansas tax; but when the seller is obligated to deliver to a point outside the state (or to a carrier/the mails for out-of-state transport), the retail sales tax does not apply (provided the property isn't returned to Kansas).

Taxable — delivery/possession in Kansas. Kansas sales tax applies if goods are sold in Kansas and possession is taken by the buyer or the buyer's agent in Kansas — regardless of the fact that the goods will be transported out of state by the purchaser. (Example: a Kansas retailer sells to a Missouri resident who immediately takes the goods to Missouri — Kansas tax applies.) So all over-the-counter sales at the Kansas store are taxable, as are sales delivered to a buyer at a Kansas address — whether the buyer is from Kansas, Missouri, the United Kingdom, or Canada.

Not taxable — delivery to an out-of-state destination. Kansas tax does not apply when the contract requires the retailer to deliver the goods to an out-of-state destination by:

• the retailer's own transportation (car or truck);
• a common carrier (e.g., UPS or FedEx); or
• the U.S. Postal Service.

Why. These rules spring from the Commerce Clause, which prohibits a state from taxing sales made in another state (Kansas can't tax Missouri sales and vice versa).

What this means for you

Retailers with walk-in and shipped sales

If the customer takes the jewelry (or any goods) in your Kansas store — or you deliver to a Kansas address — the sale is taxable, even if the customer is from out of state and leaves with it immediately. Collect Kansas state and local tax on those.

Shipments out of state

When your contract requires you to send the goods to an out-of-state address — by your own vehicle, a common carrier (UPS/FedEx), or USPS — the sale is not subject to Kansas tax. Keep documentation of the out-of-state delivery.

It's about delivery, not the buyer's residence

A buyer's home state doesn't decide it. Possession in Kansas = taxable; delivery out of state = not taxable. (Note the 2002 date: Kansas later adopted destination-based sourcing under its 2003 Streamlined legislation — verify current rules.)

Common questions

Q: An out-of-state customer buys in our Kansas store and takes it home. Do we charge Kansas tax?
A: Yes. Possession is taken in Kansas, so Kansas sales tax applies even though the buyer immediately transports the goods out of state.

Q: We ship an item to a customer's out-of-state address. Is that taxable in Kansas?
A: No — if your contract requires delivery to the out-of-state destination by your own vehicle, a common carrier (UPS, FedEx), or the U.S. Postal Service, Kansas tax does not apply.

Q: Does the customer's residence matter?
A: No. Delivery to a Kansas address (or in-store pickup) is taxable whether the buyer is from Kansas, Missouri, the UK, or Canada; what matters is where possession/delivery occurs.

Q: Why are out-of-state deliveries exempt?
A: The Commerce Clause bars a state from taxing sales made in another state, so goods the seller delivers to an out-of-state destination aren't subject to Kansas tax.

Q: Does this ruling apply to my business?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others; note also that Kansas sourcing rules changed after 2002.

Citations and references

• K.A.R. 92-19-29 — delivery to the buyer in Kansas is taxable; delivery obligated to an out-of-state point (or to a carrier/the mails for out-of-state transport) is not, unless the property is returned to Kansas.
• K.S.A. 84-2-106 — UCC definition of "sale" as passing of title from seller to buyer for a price.
• K.S.A. 84-2-401 — unless otherwise agreed, title passes where the seller completes physical delivery of the goods.
• Commerce Clause — bars a state from taxing sales made in another state; the source of the delivery-based rules.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-092

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 12, 2002

XXXX
XXXX
XXXX

RE: Your e-mail dated November 5, 2001

Dear XXXX:

Thank you for your recent letter. You work for a jewelry store and ask when Kansas sales tax applies to sale items that are delivered to in-state and out-of-state buyers.

For Kansas sales tax purposes, a sale almost always occurs at the time and place 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 subsection (c) of the sales tax regulation K.A.R. 92-19-29. It instructs that when delivery of goods is made to the buyer 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. K.A.R. 92-19-29.

Under this regulation, sales tax is imposed on the selling price of each item or article of tangible personal property, when the property is delivered to the purchaser or his representative in Kansas. The following guidelines reflect the requirements of this regulation:

· Kansas sales tax applies if goods are sold within Kansas and possession is take by the buyer or his agent in Kansas. This rule applies regardless of the fact that the goods are to be transported to an out of state destination by the purchaser immediately upon deliver. For example: If goods are sold by a Kansas retailer at his place of business in Kansas to a Missouri resident who will immediately take the goods into Missouri for use there, the Kansas sales tax applies.

· Kansas sales tax does not apply when:

§ The retailer is required by the terms of the sales contract to deliver the goods to an out of state destination using the retailer's own mode of transportation, such as a car or truck.
§ The retailer is required by the terms of the contract to deliver the goods to a common carrier for delivery to an out of state destination. Common carriers include carriers such as UPS and Fed Ex.
§ The retailer is required by the terms of the contract to deliver the goods to the United States Postal Service for delivery to an out of state destination.

The rules set forth in the regulation spring from the Commerce Clause that prohibits a state from taxing sales that are made in another state. For example, Kansas cannot tax sales made in Missouri and Missouri cannot tax sales made in Kansas. Therefore, all over-the-counter sales made at your location in Kansas are subject to state and local Kansas sales tax. So are other sales that you deliver to a buyer in Kansas. This rule applies whether the buyer who takes delivery in your store is from Kansas, Missouri, the United Kingdom, or Canada. When an item is delivered to a customer outside your store at a Kansas address, the sale is also subject to Kansas sales tax. Taxable sales includes all sales that are delivered to a Kansas address, whether you deliver it in a company car, or ship it by UPS, Fed Ex, or the United States Post Office. Sales that are not subject to tax are all sales that are delivered to an address outside Kansas , whether you deliver it there in a company car, or ship it there by UPS, Fed Ex, or the United States Post Office

I hope that my letter answers all of your questions. If anything is unclear, please call me at 785-296-3081 and we can review your questions. 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: 11/14/2002 Date Modified: 11/15/2002

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