Is the labor to construct a new underground electrical 'duct bank' exempt from Kansas sales tax as original construction?

Plain-English summary

A company hired an outside contractor to supply labor to build a new underground electrical distribution "duct bank" — a system of underground conduit piping and manhole structures that protects and routes electrical wiring and switching equipment. It asked whether the project counts as "original construction," which would make the labor exempt from sales tax.

The Department said no. Under K.S.A. 79-3603(p), "original construction" means the first or initial construction of a new building or facility — and a duct bank fits neither the "building" nor the "facility" definition. Because the project isn't original construction of a building or facility, the labor is taxable under the Kansas retailers' sales tax.

What this means for you

Electrical and underground utility contractors

The original-construction labor exemption is narrow: the project has to be the first construction of a building or facility as the statute defines those terms. Infrastructure like an underground duct bank doesn't qualify, so charge (and expect) sales tax on that installation labor. Don't assume "new = exempt" — the label "original construction" turns on building/facility status, not on newness.

Companies commissioning such projects

Budget for sales tax on the installation labor for a new duct bank; it isn't covered by the original-construction exemption.

Common questions

Q: Is labor to build a new underground duct bank exempt as original construction?
A: No. A duct bank isn't a "building" or a "facility" under K.S.A. 79-3603(p), so the labor doesn't qualify for the original-construction exemption and is taxable.

Q: Doesn't "new" construction make the labor exempt?
A: Not by itself. The exemption requires original construction of a new building or facility; a duct bank is neither.

Citations and references

• K.S.A. 79-3603(p) — defines "original construction" as the first or initial construction of a new building or facility; because a duct bank is neither, the installation labor is taxable.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2012-004

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 24, 2012

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Dear XXXXXXX,

This letter is in response to your request for a private letter ruling dated July 10, 2012. Per your letter, a company is having an outside contractor supply labor for the construction of a new underground electrical distribution “duct bank.” The “duct bank” project is a new underground conduit piping system with man hole structures used for protection and routing of electrical wiring and switching equipment. You have asked us to determine whether this project is considered original construction, and if so, is the labor performed on this project exempt from sales tax under the original construction clause?

Based on the facts provided above and in your letter, this project is not considered original construction. Therefore, the labor on this project is not exempt from sales tax. According to K.S.A. 79-3603(p), "original construction" means the first or initial construction of a new building or facility. The construction of this underground “duct bank” does not fall into the definitions of “building” or “facility". Therefore, the labor for this project is still subject to the Kansas retailers’ sales tax.

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

sdc

Date Composed: 07/24/2012 Date Modified: 07/24/2012

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