Are charges to set up and reconfigure movable office wall panels and furniture into work cubicles subject to Kansas sales tax?

Plain-English summary

A service business sets up new movable wall panels and furniture into work cubicles and reconfigures existing ones for commercial clients. Noting that some competitors charge sales tax and some don't, it asked whether these services are taxable. The Department's answer: yes — they are subject to Kansas sales tax. The business should collect state and local sales tax based on its business location (because it does not enter into contracts for $10,000 or more, which would change the sourcing).

Why it's taxable. The sales tax act taxes the service of "installing or applying tangible personal property" (K.S.A. 79-3603(p)) and of "repairing, servicing, altering or maintaining tangible personal property" (K.S.A. 79-3603(o)). The Department has always taxed a seller's charge to set up newly purchased equipment (its examples: home gyms, weight equipment, home theaters, stereos). The 1998 law change made setup work exempt only when done in homes and residences — it continues to apply to commercial businesses. So:

• Breaking down cubicles is "altering" tangible personal property (taxable).
• Reinstalling panels into a new configuration is "installing" tangible personal property (taxable).
• These are taxable even when the equipment sale and the setup service are billed as separate line items.

Tearing down or moving any part of the movable wall system — including shelving, desks, lighting, and other parts of the panel system — is taxable. Standalone desks, chairs, and file cabinets that are not part of the panel system are not taxable to move only if that work is contracted for separately and billed as a separate line item. If lumped in with the panel knock-down/re-install, moving them is taxable as an incidental part of the service charge.

Where it's taxed. The services are taxable only when performed in Kansas. Work performed in another state should be checked against that state's rules.

What this means for you

Office furniture installers and cubicle contractors

Setting up or reconfiguring commercial cubicles and panel systems is taxable labor in Kansas. Charge sales tax on it — and don't assume separating the equipment and labor onto different line items makes the labor exempt. It doesn't.

The residential exception doesn't help commercial work

The 1998 change exempted installation/setup labor for residences only. Commercial installation, altering, and setup remain taxable under 79-3603(p) and (o).

Separately state stand-alone moves to keep them exempt

Moving free-standing furniture that isn't part of the panel system can be exempt — but only if you contract for it separately and show a separate price. Bundle it into the panel job and it becomes taxable.

Common questions

Q: Is reconfiguring office cubicles taxable in Kansas?
A: Yes. Reinstalling panels is taxable "installing" of tangible personal property and breaking cubicles down is taxable "altering"; commercial setup labor is taxable under K.S.A. 79-3603(p) and (o).

Q: We bill the panels and the labor separately — is the labor still taxable?
A: Yes. The Department said these services are taxable even when the equipment and the installation/setup are billed as separate line items.

Q: What about moving free-standing desks and file cabinets?
A: Moving stand-alone items not part of the panel system is exempt only if separately contracted and separately line-itemed. Lumped in with the panel work, it's taxable.

Q: Does the residential exemption apply to our commercial jobs?
A: No. The 1998 change exempted setup labor only for homes and residences; commercial work remains taxable.

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, though it reflects how the Department taxes commercial installation and setup labor.

Citations and references

• K.S.A. 79-3603(p) — taxes the service of installing or applying tangible personal property; reinstalling cubicle panels is taxable installation. (The residential carve-out from the 1998 change does not reach commercial work.)
• K.S.A. 79-3603(o) — taxes the service of repairing, servicing, altering, or maintaining tangible personal property; breaking down cubicles is taxable "altering."
• Separately-stated rule — setup labor is taxable even when billed separately from the equipment; moving stand-alone furniture is exempt only if separately contracted and line-itemed.
• Situs — the services are taxable only when performed in Kansas; because the business's contracts are under $10,000, tax is collected at the business's location.
• 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-2002-099

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 25, 2002

XXXX
XXXX
XXXX

RE: Your letter received October 31, 2002

Dear XXXX:

Thank you for your recent letter. You are engaged in a service business that contracts with other businesses that own movable walls and related office equipment. You provide services to set up new wall panels and furniture into work cubicles. You also reconfigure existing wall panels and furniture. Some of your competitors do not charge or collect sales tax on these services, while other do. You ask if these services are taxable.. Please be advised that they are subject to Kansas sales tax. You should collect state and local sales tax based on your business location, since you do not enter into contracts for $10,000 or more.

The Kansas retailers' sales tax act taxes the service of "installing or applying tangible personal property." K.S.A. 79-3603(p). The act also taxes the services of "repairing, servicing, altering or maintaining tangible personal property." K.S.A. 79-3603(o). The department has always taxed a seller's charges to a buyer for setting-up newly purchased equipment. For example, prior to the law change in 1998, the department always held that setting up home gyms, weight training equipment, home theatres, stereo equipment, and similar equipment for use are services that are taxable under K.S.A. 79-3603(p) and K.S.A. 79-3603(o). While this rule was changed for work done in homes and other residences, the rule continues to apply for commercial businesses. These services are taxable even when the sale of equipment and installation or set-up services are billed as separate line items.

In your case, taking down movable office walls and reinstalling them in different configuration are taxable services. Breaking down the cubicles is "altering" tangible personal property. Reinstalling the walls to reconfigure them into a different office set-up is "installing tangible personal property." While "installation services" often involve installing replacement parts on tangible personal property such as a boat or automobile, this imposition also covers charges for setting up tangible personal property for use. For example, if someone owns an automobile and buys performance parts for it, a service provider who install the parts must charge sales tax on installation charges even though the service provider is selling nothing but the services.

Tearing down or moving any part of the movable wall system is subject to sales tax. This includes tearing down, moving, and installing shelving, desks, lighting, and other part of the panel system that makes up the cubicles. If you are hired to move stand-alone desks, chairs, and file cabinets that are not part of the panel wall system, these services would not be subject to sales tax. To be exempt, such services would have to be contracted for separately and be billed as a separate line item. If you lump these charges together with the charges for knocking-down and re-installing the panels, these services are taxable as an incidental part of your service charge to your customers. For example, moving a file cabinet as part of the reconfiguration of a panel wall system would be taxable unless the contract provided for moving the cabinets and identified a separate price that was being paid.

Please note that your services are subject to Kansas sales tax only when you perform the services in Kansas. If you perform your services in Missouri or on some other state, you should check with the state where you perform the services to determine whether the services are subject to that State's sales tax. The competitors that you mention should be collecting sales tax on services performed in Kansas in the same manner as I have described. If they are not, please provide me with their names and addresses and we will review their practices to see that what they do confirms your belief. If they are not collecting sales tax as required by law, they will be liable for any state and local tax that went uncollected for the past three years plus any applicable penalty and interest. Not collecting tax gives them a business advantage over businesses such as your that correctly apply the law and collect sales tax for the state.

I hope that my letter answers all of your questions clearly and completely. If you need to discuss this matter further, please call me at 785-295-3081. 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: 11/25/2002 Date Modified: 11/25/2002

Table 1

Table 2