Are labor and materials to repair a flood-damaged spillway subject to Kansas sales tax?

Plain-English summary

The question was whether repairing a spillway damaged by a flood is subject to Kansas sales tax. The Department's answer: both the labor and the materials are taxable.

Under K.S.A. 79-3603(p), Kansas taxes the service of installing or applying tangible personal property (whether it stays personal property or becomes part of real estate). That statute carves out an exception for "original construction," which is defined to include not just the first construction of a new building or facility but also the restoration, reconstruction, or replacement of a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion or earthquake.

The key limitation is that the exception applies to a "building or facility." The Department reasoned that if the spillway had been a building or facility damaged by flood, the repair labor would have been exempt under that original-construction exception. But a spillway does not fit "building or facility," so the exception does not apply. The result: the labor services are taxable, and the materials are taxable too.

What this means for you

Contractors doing repair or restoration work

Do not assume that all flood, fire, or storm repair labor is tax-exempt. The original-construction exception in K.S.A. 79-3603(p) turns on whether you are restoring a building or facility. Repairs to structures that don't meet that description — like a spillway — remain taxable labor.

Owners of dams, spillways, and similar structures

Budget Kansas sales tax on both the labor and materials for this kind of repair. The disaster-restoration relief that can apply to a damaged building or facility does not automatically extend to every damaged structure.

Why the distinction matters

The exemption is not about the cause of the damage (flood) but about the thing being restored. A qualifying "building or facility" gets exempt restoration labor; other improvements do not.

Common questions

Q: Isn't flood-damage repair exempt as disaster restoration?
A: Only when you are restoring a building or facility damaged by a listed event (fire, flood, tornado, lightning, explosion, earthquake). A spillway is not a building or facility, so the exemption did not apply.

Q: What exactly is taxed here — labor, materials, or both?
A: Both. Because the original-construction exception does not reach the spillway, the installation labor is taxable and the materials are taxable.

Q: When would the labor have been exempt?
A: The Department said that if the spillway had been a building or facility damaged by flood, the repair labor would have qualified for the original-construction exception and been exempt.

Q: Does this ruling apply to my project?
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 reads the "building or facility" limit on the original-construction exception.

Citations and references

• K.S.A. 79-3603(p) — taxes the service of installing or applying tangible personal property, with an exception for "original construction" that includes restoring a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion, or earthquake. The Department found a spillway is not a "building or facility," so the repair labor and materials are taxable.
• 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-2003-040

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 17, 2003

TTTTTTTTTTTTT
TTTTTTTTTTTTT
TTTTTTTTTTTTT
TTTTTTTTTTTTT

Dear Mr. TTTTT:

We wish to acknowledge receipt of your letter dated May 23, 2003, regarding the application of Kansas Retailers' Sales tax.

K.S.A. 79-3603(p) states in part: "the gross receipts received for the service of installing or applying tangible personal property which when installed or applied is not being held for sale in the regular course of business, and whether or not such tangible personal property when installed or applied remains tangible personal property or becomes a part of real estate, except that no tax shall be imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building or facility, the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence or the construction, reconstruction, restoration, replacement or repair of a bridge or highway.
For the purposes of this subsection:
"Original construction" shall mean the first or initial construction of a new building or facility. The term "original construction" shall include the addition of an entire room or floor to any existing building or facility, the completion of any unfinished portion of any existing building or facility and the restoration, reconstruction or replacement of a building or facility damaged or destroyed by fire, flood, tornado, lightning, explosion or earthquake, but such term, except with regard to a residence, shall not include replacement, remodeling, restoration, renovation or reconstruction under any other circumstances. . ."

Please be advised that if the spillway would have been a building or facility which was damaged by a flood, then the labor services would have been exempt from Kansas sales tax(es). Therefore, both the labor and materials would be subject to the appropriate Kansas sales tax(es).

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 10/01/2003 Date Modified: 10/01/2003

Table 1

Table 2