How does Kansas sales tax apply to an auto retailer's various charges — warranties, tire fees, core charges, coupons, labor, and warranty repairs?

Plain-English summary

An automotive retailer asked the Department to run through the sales-tax treatment of a long list of its charges. The results:

Taxable:

• Road hazard warranties — K.S.A. 79-3603(r) and K.A.R. 92-19-62.
• State tire recycling/waste fee, company tire disposal fee, and core charges — K.S.A. 79-3603(a). (Core charges can be refunded if the customer returns the core.)
• Manufacturer coupons (but store coupons are exempt).
• Labor, repairs, and installation, and storage charges — K.S.A. 79-3603(q).
• Freight/shipping & handling when the item shipped is taxable.
• Clothing, food, and soda/juice/bottled water — K.S.A. 79-3603(a) (no special reduced rate for these).

Exempt:

• State inspection/stickers and restocking fees.
• Repairs under a warranty, extended warranty, or service contract on which tax was already collected — the covered service is exempt, though the customer still owes tax on any deductible.
• Store coupons.
• Leased-vehicle repairs: parts and services sold to the lessor for property it holds for lease are exempt, but parts and services sold to the lessee are taxable (and purchases made directly by a tax-exempt entity are exempt).

What this means for you

Auto dealers, tire shops, and repair shops

Tax the road-hazard warranties, tire and disposal fees, core charges, labor, storage, and merchandise; don't tax state inspections, restocking fees, or repairs covered by an already-taxed warranty. Watch the store-vs-manufacturer coupon distinction and the lessor-vs-lessee split on leased-vehicle work.

Customers

Expect tax on most fees and labor, but not on state inspection stickers, restocking fees, or repairs covered under a warranty on which you already paid tax (you may still owe tax on a deductible).

Common questions

Q: Is a road-hazard warranty taxable?
A: Yes, under K.S.A. 79-3603(r) and K.A.R. 92-19-62.

Q: Are warranty repairs taxed?
A: Not if the warranty or service contract already had tax collected on it; but the customer owes tax on any deductible portion.

Q: Are store coupons and manufacturer coupons treated the same?
A: No. Store coupons are exempt (they reduce the taxable price); manufacturer coupons are taxable (tax applies to the full price).

Citations and references

• K.S.A. 79-3603(a) — imposes tax on retail sales of tangible personal property; applied to tire recycling/disposal fees, core charges, clothing, food, and soda.
• K.S.A. 79-3603(q) — taxes labor services of repairing, servicing, and maintaining tangible personal property; applied to labor, repairs, installation, and storage.
• K.S.A. 79-3603(r) and K.A.R. 92-19-62 — applied to make road hazard warranties taxable. The Department treated warranty/service-contract repairs (where tax was collected on the contract) and state inspections, restocking fees, and store coupons as exempt, and split leased-vehicle repairs between exempt lessor purchases and taxable lessee purchases.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2005-021

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 4, 2005

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Dear Ms. TTTTTT:

We wish to acknowledge receipt of your letter dated July 21, 2005, regarding the application of Kansas Retailers’ Sales tax.

1) Road Hazard Warranties—Taxable, pursuant to K.S.A. 79-3603(r) and K.A.R. 92-19-62.

2) State Imposed Tire Recycling/Waste Fee—Taxable, pursuant to K.S.A. 79-3603(a)

3) Company Imposed Tire Disposal Fee—Taxable, pursuant to K.S.A. 79-3603(a).

4) Core Charges—Taxable, pursuant to K.S.A. 79-3603(a). The sales tax can be refunded, if the customer returns the core.

5) Store and Manufacturing coupons, Store Coupons, exempt. Manufacturing coupons, taxable.

6) Labor, Repairs & Installation—Taxable, pursuant to K.S.A. 79-3603(q).

7) Freight/Shipping & Handling—Taxable, if the item being shipped is taxable.

8) Storage Charges—Taxable, pursuant to K.S.A. 79-3603(q).

9) State Inspection/Stickers—Exempt

10) Battery Protection/Warranty Service—If the service is performed under a warranty agreement, which had tax collected upon it, then the service would be exempt from sales tax.

11) Warranties—Taxable. If the service is performed under a warranty agreement, which had tax collected upon it, then the service would be exempt from sales tax.

12) Automotive Repairs Involving Extended Warranties & Service Contracts—Exempt, if the service is performed under a warranty agreement, which had tax collected upon it, then the service would be exempt from sales tax. However, the customer would be liable for any tax on the deductible portion.

13) Automotive Repairs/Services On Leased Vehicles—Sales of repair parts and services to a lessor for repairs or services of tangible personal property held for lease by the lessor shall not be subject to sales tax. However, sales of repair parts and service to a lessee for repairs or services of leased tangible personal property shall be subject to sales tax. Further, if the purchases are made directly by a tax exempt entity, then said purchase would be exempt from sales tax.

14) Restocking Fee—Exempt.

15) Clothing—Taxable, pursuant to K.S.A. 79-3603(a). There is not a special tax rate for clothing.

16) Food—Taxable, pursuant to K.S.A. 79-3603(a). There is not a special tax rate for food.

17) Soda/Fruit Juice/Bottled Water—Taxable, pursuant to K.S.A. 79-3603(a). There is not a special tax rate for soda/fruit juice/bottled water.

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: 08/17/2005 Date Modified: 08/17/2005

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