How is a direct-selling company's Kansas sales tax sourced when distributors pick up orders at its fulfillment center versus having them shipped?

Plain-English summary

A direct-selling company operates regional distribution (fulfillment) centers around the country, including one in Kansas. In-state and out-of-state distributors pick up their order packages at the Kansas center and transport them back to their own locations. The company applies the tax rate in place at the fulfillment center and asked whether that is correct.

The Department confirmed it is. When the distributor picks up the products at the regional distribution center, that pick-up point is the situs of the sale, so the tax is based on the rate at the fulfillment center — for both in-state and out-of-state distributors. By contrast, when items are shipped to the distributor's own place of business through a common carrier, the sale is taxed at the rate in effect at that delivery location.

What this means for you

Companies with Kansas fulfillment or distribution centers

If your customers pick up at your center, source the sale to the center's location and rate. If you ship via common carrier, source the sale to where the goods are delivered.

Distributors and pickup customers

Expect the tax rate of the fulfillment center where you take possession, not your home location, when you pick up the goods yourself.

Common questions

Q: Which rate applies when a distributor picks up at the Kansas center?
A: The rate at the fulfillment center — the pick-up point is the situs of the sale, for both in-state and out-of-state distributors.

Q: What if the goods are shipped instead?
A: Then the rate at the delivery location applies, where a common carrier delivers them.

Citations and references

• Destination/pick-up sourcing — the Department stated that "treating the pick up of the products at the regional distribution center as the situs of the sale is correct," so pick-ups are taxed at the fulfillment center's rate, while "items shipped to the distributor's location of business through a common carrier would be taxed at the rate in place at the location of the delivery." The ruling cites no specific statute section.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2005-018

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 7, 2005

XXXXX
XXXXX
XXXXX

Dear XXXXX:

I have been asked to answer your letter dated June 30, 2005. In it, you requested a private letter ruling about the direct selling company you that represent and their tax practices.

As stated in your letter, your regional distribution centers are located through out the country including one in the state of Kansas for the fulfillment of orders. In-state and out-of-state distributors pick up the packages within the state of Kansas and transport them back to the distributor’s location. The direct selling company applies the rate of the tax in place at the location of the fulfillment center.

Your current calculation method of treating the pick up of the products at the regional distribution center as the situs of the sale is correct. The in-state and out-of-state distributors would be taxed at the location of the fulfillment center. Conversely the items shipped to the distributor’s location of business through a common carrier would be taxed at the rate in place at the location of the delivery.

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.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Mark D. Ciardullo
Tax Specialist

DVL

Date Composed: 07/07/2005 Date Modified: 07/07/2005

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