Is transferring a vehicle from a partner to the partnership subject to Kansas sales tax?

Plain-English summary

The question was whether moving a vehicle between a partner and their partnership triggers Kansas sales tax. People sometimes assume that contributing property to their own business, or pulling it back out, is a tax-free internal shuffle. Kansas treats vehicle transfers differently.

The Department pointed to K.A.R. 92-19-30(j)(3), which says a transfer of a vehicle from a partner to the partnership, or from a partnership to a partner, is presumed to be a taxable transfer. The regulation adds that a transfer from the partner to the partnership is presumed to be made in consideration of an increased partnership interest — in other words, the partner is deemed to receive something of value (a larger stake) in return, which is the consideration that makes the transfer a taxable sale. Applying that rule, the Department concluded the vehicle transfer in question is subject to the appropriate Kansas sales tax(es).

What this means for you

Partnerships and their partners

Do not assume that titling a car, truck, or trailer into (or out of) your partnership is tax-free. Kansas presumes such a transfer is a taxable sale, and a partner's contribution is presumed made in exchange for an increased partnership interest. Plan for sales tax on the vehicle's value unless you can rebut that presumption on your specific facts.

Accountants and tax preparers

When a client reorganizes vehicle ownership around a partnership, flag the K.A.R. 92-19-30(j)(3) presumption. Because it is a presumption, the treatment turns on the facts of the particular transfer, so document the transaction carefully.

Common questions

Q: Is contributing my vehicle to my partnership really a taxable sale?
A: Kansas presumes so. K.A.R. 92-19-30(j)(3) treats a partner-to-partnership vehicle transfer as a taxable transfer, with the partner presumed to receive an increased partnership interest as consideration.

Q: What about taking a vehicle back out of the partnership?
A: The regulation applies the same presumption to a transfer from the partnership to a partner — it too is presumed taxable.

Q: Is there any way it is not taxed?
A: The rule is a presumption, so the outcome depends on the specific facts. This ruling found the transfer before it was taxable; a different set of facts could support a different result, but you would need to overcome the presumption.

Q: Does this ruling apply to my situation?
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 vehicle-transfer presumption.

Citations and references

• K.A.R. 92-19-30(j)(3) — provides that a transfer of a vehicle from a partner to the partnership, or from a partnership to a partner, is presumed to be a taxable transfer, and that a transfer from the partner to the partnership is presumed to be made in consideration of an increased partnership interest. The Department applied this to conclude the transfer was subject to Kansas sales tax.
• 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-2003-055

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 7, 2003

TTTTTTTTTTTTT
TTTTTTTTTTTTT
TTTTTTTTTTTTT

Dear Mr. TTTTTTT:

We wish to acknowledge receipt of your letter dated October 29, 2003, regarding the application of Kansas Retailers' Sales tax.

K.A.R. 92-19-30(j)(3) states in part: "A transfer of a vehicle from a partner to the partnership or from a partnership to a partner shall be presumed to be a taxable transfer. A transfer from the partner to the partnership shall be presumed to be made in consideration of an increased partnership interest. . ."

In closing, the transfer of the motor vehicle from TTTTTTTTTTTTTTTTTTTTTTTTT, TTTT. 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: 11/14/2003 Date Modified: 11/14/2003

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