Are charges for wireless (3G) broadband internet access subject to Kansas sales tax, including when bundled with taxable services?

Plain-English summary

A provider of wireless (3G) broadband connection services asked the Department whether its charges to customers for that internet access are taxable as a communications service, and whether they become taxable when bundled with other taxable items or services.

The Department said internet access charges are not taxable. The federal Internet Tax Freedom Act (F-ITFA) bars Kansas from taxing customer charges for accessing the internet. "Internet access service" means providing customers the ability to reach the Internet or World Wide Web; it doesn't include charges for restricted websites, downloading information, or other online services used after the network is accessed — but those aren't taxable either, unless they include the delivery of prewritten computer software.

There is one way the exemption can be lost through bundling. Per the Department's guide EDU-71R, under F-ITFA Kansas may tax otherwise-exempt internet access charges if they're bundled with taxable services and both: (A) the internet access charge is not separately stated on the customer's bill, and (B) the provider's business records can't identify and reasonably establish the costs of providing internet access. To keep the access charge exempt, the Department advised the company to separately state it on invoices and keep records establishing the associated costs.

What this means for you

Internet and wireless broadband providers

Your charge for internet access itself isn't taxable in Kansas — that's a federal protection. But don't bury it inside a bundle of taxable services on the invoice. If you both fail to separately state the access charge and can't show its cost in your records, Kansas can tax the whole bundle. Separately state internet access and keep cost records.

Customers buying broadband

The internet-access portion of your bill shouldn't carry Kansas sales tax; taxable add-ons bundled with it might, depending on how the provider bills and documents them.

Common questions

Q: Is wireless (3G) broadband internet access taxable in Kansas?
A: No. The federal Internet Tax Freedom Act prohibits Kansas from taxing internet access charges.

Q: Can it ever be taxed?
A: Yes, if the access charge is bundled with taxable services, isn't separately stated, and the provider's records can't establish the cost of the internet access — then Kansas may tax the bundle.

Q: How do I protect the exemption?
A: Separately state the internet access charge on the customer's invoice and keep business records that identify and reasonably establish the associated costs.

Citations and references

• Federal Internet Tax Freedom Act (F-ITFA) — prohibits Kansas from taxing customer charges for internet access; the basis for treating the 3G broadband access charge as exempt.
• Kansas Department of Revenue Information Guide EDU-71R — sets out the bundling rule: internet access charges bundled with taxable services can be taxed only if not separately stated and the provider's records can't establish the internet-access costs.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2011-003

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 3, 2011

XXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX

Dear XXXXXXXX,

This letter is in response to your letter dated November 1, 2010. In your letter, you inquire whether “charges to . . . customers for wireless (3G) broadband connection services are taxable as a communications service?” and whether “these charges [are] taxable if they are bundled with other taxable items or services?”

Under the Federal Internet Tax Freedom Act (F-ITFA), Kansas is prohibited from taxing customer charges for accessing the internet. “Internet access service” means the service of providing customers with the ability to access the Internet or World Wide Web. Internet access service does not include charges for accessing restricted websites, downloading information, or similar on-line services that are utilized after the network has been accessed. Regardless, these types of services are not subject to Kansas tax unless they include the delivery of prewritten computer software.

However, according to Kansas Department of Revenue Information Guide EDU-71R, under F-ITFA, Kansas may impose tax on otherwise exempt Internet access charges if the access charges are bundled with charges for taxable services, provided that “(A) the Internet access charges are not separately stated on the customer’s bill or invoice; and (B) the access provider’s business records cannot identify and reasonably establish its costs that are associated with providing Internet access services.”

Hence, in order to ensure that the Internet access charge remains tax exempt, it is advised that your company list the Internet access charge separately on your customer’s invoice and maintain business records to ensure that the costs associated with providing Internet access services are identifiable and reasonably established.

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.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 05/10/2011 Date Modified: 05/10/2011

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