Does the Kansas vehicle rental excise tax apply to truck rentals, and how does the 28-day rule work?

Plain-English summary

A truck rental company asked how the vehicle rental excise tax applies to truck rentals, and specifically how the 28-day rule should be handled.

The Department pointed to the imposition statute, K.S.A. 79-5117(a), which adds — on top of Kansas retailers' sales tax — an excise tax of 3½% on "the gross receipts received from the rental or lease for a period of time not exceeding 28 days of motor vehicles" that would otherwise be taxable under K.S.A. 79-5101 et seq. In other words, a rental for more than 28 consecutive days is exempt from the excise tax.

The Department explained this 28-day rule works like the one in the transient guest tax (hotel) act:

• Most hotels charge the transient guest tax on each bill until a guest has stayed more than 28 consecutive days, then refund the previously collected tax on the next bill.
• Because the 28-day period usually spans two monthly returns, the hotel deducts on the next return the tax it reported (and collected) on the prior return. The collect-then-refund within a period is a wash.

The same procedure can be used for truck rentals. Instead of relying on a customer's stated "intent", a company can charge the vehicle rental tax on the lease and then refund it once the 28-day period passes, deducting the previously remitted tax on the next return.

Two practical limits:

• If there is no reasonable expectation the lease will run less than 28 days, the charge-and-refund procedure need not be followed.
• Where that "no reasonable expectation" is not met, the excise tax must be collected from all customers who actually lease a vehicle for 28 days or less.

What this means for you

Truck and vehicle rental companies

Collect the 3½% vehicle rental excise tax on rentals of 28 days or less. Rentals exceeding 28 consecutive days are exempt. You don't have to predict intent up front — you can charge the tax and refund it once a rental crosses the 28-day line.

Handling the refund on your returns

When you refund tax you already remitted on a prior return, deduct it on your next return. Tax collected and refunded within the same reporting period is a wash for that return.

Long-term leases

If it's clear from the outset that a lease will exceed 28 days (no reasonable expectation of a shorter term), you can decline to collect the excise tax rather than charge-and-refund. But if that certainty is absent, collect from everyone who actually rents 28 days or less.

Common questions

Q: Does the vehicle rental excise tax apply to truck rentals?
A: Yes — the 3½% excise tax applies to rentals of motor vehicles for 28 days or less, in addition to retailers' sales tax.

Q: What about a rental longer than 28 days?
A: A rental for more than 28 consecutive days is exempt from the excise tax.

Q: I can't tell up front how long the customer will keep the truck. What do I do?
A: Charge the tax on the lease and refund it once the rental passes 28 consecutive days, then deduct the previously remitted tax on your next return.

Q: When can I skip collecting entirely?
A: When there is no reasonable expectation the lease will run less than 28 days. Otherwise, collect from all customers who actually rent for 28 days or less.

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 shows how the Department applies the 28-day rule to truck rentals.

Citations and references

• K.S.A. 79-5117(a) — imposes the 3½% vehicle rental excise tax "upon the gross receipts received from the rental or lease for a period of time not exceeding 28 days of motor vehicles" otherwise taxable under K.S.A. 79-5101 et seq. Rentals exceeding 28 consecutive days fall outside the tax.
• K.S.A. 79-5101 et seq. — the statutory scheme referenced by the excise tax as defining the motor vehicles that would otherwise be subject to tax.
• Transient guest tax act — the Department used its parallel 28-day charge-then-refund mechanism as the model for truck rentals.
• 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-2003-034

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 28, 2003

XXXX
XXXX
XXXX

RE: You letter dated May 8, 2003

Dear XXXX:

I have been asked to answer your letter that we received earlier this month. In it, you ask how the vehicle rental excise tax applies to truck rentals. Your specific concern is how the 28 day provision should be treated. The 28 day provision is part of the imposition statute, K.S.A. 79-5117(a):

(a) In addition to the tax imposed pursuant to the Kansas retailers' sales tax act, there is hereby imposed an excise tax at the rate of 3 1/2% upon the gross receipts received from the rental or lease for a period of time not exceeding 28 days of motor vehicles which except for the operation of K.S.A. 79-5101, and amendments thereto, would be subject to taxation pursuant to K.S.A. 79-5101 et seq., and amendments thereto.

The 28 day provision is similar to a provision contained in the Kansas transient guest tax act. Both provisions exempt rental charges from sales tax if the rental period is for more than 28 consecutive days.

On a practical basis, most hotels charge the transient guest tax on hotel billings to a guest until the guest has rented a hotel room for more than 28 consecutive days. Once the 28 day requirement has been met, the hotel refunds the previously collected transient guest tax to the guest on the next guest billing.

Most consecutive 28 day periods cover two monthly transient guest tax returns, with the refund to the guest occurring before the return is filed for the second month. The hotel is allowed to claim a deduction on the next transient guest tax return for the tax that was reported on the prior return as having been collected from the guest. Any transient guest tax collected during the current reporting period that is refunded to the guest is treated as a wash on the next return, since the tax payment and the tax refund occur during that reporting period for that return.

This same procedure can be used for truck rentals. Rather than relying on a customer's "intent" to rent a vehicle for twenty or thirty days, a truck rental company can charge the vehicle rental tax on leases and then refund the tax once the 28 day period passes. After the tax refund has been paid to the vehicle renter, remittances to the department made on the prior return by the rental company based on tax collected from the vehicle renter can be deducted on the next return. Any tax that is collected and refunded during the reporting for a next return is treated as a wash, since the tax payment and the tax refund occur during the reporting period for that return.

Obviously, this procedure does not need to be followed where there is no reasonable expectation that the lease will run for less than 28 days. In the exceptional cases where the "no reasonable expectation" is not met, the vehicle rental excise tax must be collected from all customers who actually lease a vehicle for twenty-eight days or less.

I hope that I have adequately answered all of your questions. If you have more, 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/Policy & Research

Date Composed: 05/29/2003 Date Modified: 05/29/2003

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