When a seller's employee delivers a product to the customer, is Kansas local sales tax charged at the store's rate or the customer's location rate?

Plain-English summary

A retailer's sales staff sometimes take possession of a product and personally deliver it to the customer. When they do, the salesperson signs for the goods and becomes personally liable for them (if the customer doesn't pay, the salesperson has to). The retailer's theory was that this liability makes the salesperson an agent for the customer, so the sale "takes place" at the store and the store's local sales tax rate should apply.

The Department disagreed. Under Kansas's new destination-based sourcing rules, enacted in 2003 House Bill 2005, a retail sale is sourced to the location where the customer receives the product:

• If the customer receives the product at the seller's business location, the local rate at that location applies.
• If the seller delivers the product to the customer at the customer's location, the local rate at the customer's location applies.

Because the delivering sales staff are the retailer's own employees, the delivery is a delivery by the seller — so the local rate at the customer's location governs. The salesperson's personal payment liability does not turn the salesperson into the customer's agent.

The one exception the Department noted: if the customer refuses the product and the salesperson then becomes personally responsible to pay for it, the salesperson could be regarded as the "purchaser." In that case, if the salesperson took possession of the refused product at the store, the store location's rate applies to that transaction.

What this means for you

Retailers who deliver with their own staff

Charge the state and local sales tax rate for the customer's delivery location, not your store's rate, when your employees carry goods to the customer. Internal arrangements that make a salesperson liable for unpaid goods don't change where the sale is sourced.

Businesses structuring "agent" arrangements

Don't assume that making a delivery person financially responsible for the product converts a company delivery into a customer pickup. The Department looks at who actually delivers: your employee delivering to the buyer is a seller-delivery sourced to the buyer's location.

Handling refused goods

If a customer refuses delivery and your salesperson personally absorbs the cost, that leg of the transaction can be treated as a purchase by the salesperson, sourced to where the salesperson took possession (your store).

Common questions

Q: My employee drives the product to the customer. Whose local rate do I charge?
A: The rate at the customer's location, because your employee's delivery is a delivery by the seller under destination sourcing.

Q: My salesperson is personally on the hook if the customer doesn't pay. Doesn't that make the store the point of sale?
A: No. The Department rejected the "salesperson is the customer's agent" theory; the employee delivery is still sourced to the customer's location.

Q: When would the store's rate ever apply?
A: If the customer refuses the goods and the salesperson becomes personally responsible to pay for them, the salesperson may be treated as the purchaser; if they took possession at the store, the store rate applies to that transaction.

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 sources employee-delivered sales.

Citations and references

• 2003 House Bill 2005 — Kansas's destination-based sourcing law. It sources a retail sale to the seller's business location when the purchaser receives the product there, and otherwise to the location where the customer receives the product (including a delivery address). The Department applied it to source an employee-delivered sale to the customer'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-2003-036

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 11, 2003

XXXX
XXXX
XXXX

Re: Your Correspondence dated June 20, 2003

Dear Mr. XXXX:

You have requested a private letter ruling concerning the new destination sourcing rules, based on the following facts:

On occasion, we have sales staff that will take possession of product for a customer and personally deliver it to them. In these circumstances, the salesperson signs for and becomes personally liable for the product (i.e. if the customer does not pay, the salesperson will have to). Under these circumstances, should the sales tax being charged to the customer be the rate for our location (XXXX, KS), or the customer's location? It is our feeling that as the salesperson is liable for payment, they have become an agent for the customer and we should charge the rate for our location, as this is where the sale takes place.

In general, the new destination sourcing rules enacted in 2003 House Bill 2005 provide that the retail sale should be sourced to the location where the customer receives the product, for purposes of determining the local sales tax rate that applies to the transaction. If the customer receives the product at the seller's business location, the local sales tax rate at that location applies. If seller delivers the product to the customer at the customer's location, then the local sales tax rate in effect at the customer's location would apply. You indicated that the sales staff delivering product to customers are employees of XXX. Because XXX employees are delivering the product to the customer's location, the local sales tax rate in effect at the customer's location should apply. However, if the product in possession of the sales staff is refused by the customer and the sales staff becomes personally responsible to pay for the product, the sales staff could be regarded by XXX as the "purchaser." If the sales staff took possession of the refused product at XXX's business location, then the local sales tax rate in effect at that location should apply.

This is a private letter ruling and 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.

Very truly yours,

Richard L. Cram

Date Composed: 07/14/2003 Date Modified: 07/24/2003

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