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A private letter ruling issued by the Kansas Department of Revenue determined the taxability of monthly fees charged by a California corporation to a customer in Kansas to access and use pre-written computer software located on a server in California. Since Kansas does not impose a tax on charges for electronic access to information on a server located out-of-state, the California corporation’s charges are not subject to Kansas sales or use tax. (Private Letter Ruling No. P-2009-005, Kansas Department of Revenue, June 26, 2009)


The Kansas State Court of Tax Appeals has denied the Kansas Department of Revenue’s request for summary judgment in response to a cement manufacturer’s appeal of the Department’s final written determination denying the manufacturer’s refund request of sales tax paid on purchases of repair parts for equipment used to transport limestone. The Department argued that the manufacturer engaged in two distinct business operations: 1) limestone evacuation in and around a quarry and 2) cement manufacturing that begins when crushing activities commence at hammermill machines. The Department reasoned that this precluded the repair parts from the manufacturing exemption because they were not used in an integrated production operation by a manufacturing or processing plant or facility, as required by the “integrated plant” statutes.

However, the “integrated plant” statutes specifically state that machinery and equipment are considered an integral part of the integrated production operation when used to receive, transport, convey, handle, treat or store raw materials in preparation of its placement on the production line. The Court failed to find as a matter of law that the equipment in question was not used in an integrated production operation because the Department failed to show that the activities performed did not qualify as the activities enumerated in the statute. Further, the Department failed to prove that the equipment was not used primarily by and at the manufacturer’s single, fixed location, since the quarry and cement manufacturing operations are conducted on adjacent property owned by the manufacturer. The fact that the excavation-related activities are performed on a portion of the manufacturer’s premises where additional processing does not occur is not relevant to the determination of the plant’s boundaries.


In a letter ruling, Kansas discusses the tax treatment of computer software maintenance agreements. The ruling is effective January 1, 2009 and replaces and supersedes all prior advice, revenue rulings, and other rulings that have been issued regarding this matter. Mandatory computer software agreements for canned (prewritten) software are treated as part of the software sale and, thus, subject to Kansas sales or use tax. Any separately-stated charges for technical support services are also taxable. Optional maintenance agreements, whether sold separately, by a third party, or in conjunction with the sale of canned (prewritten) software are characterized as 50% taxable software in a bundled transaction in which the taxable and nontaxable products are not separately itemized on the invoice or billing document. When charges for technical support are separately-stated or when the agreement clearly states that only technical support services will be furnished, such charges are not taxable. A charge for an upgrade from a “basic” to a “premium” maintenance agreement is not subject to sales tax if the agreement clearly states that the upgrade is for technical support services. If not, the upgrade will be taxable at 50%. Charges for upgrades and enhancements for canned software are taxable, whether separately-stated or not. Mandatory and optional maintenance agreements for custom software are not taxable. (Revenue Ruling 19-2009-01, Kansas Department of Revenue, June 2, 2009)


Kansas legislation amends the limitation period for sales tax refund and credit claims. Under old legislation, no refund or credit was allowed after a three year period from the due date of the return, unless the taxpayer filed a claim before the end of the period. Under amended legislation, taxpayers must file a claim within one year of the return due date to be eligible to receive a refund or credit (Senate Sub. For Sub. For H.B. 2365, Laws 2009, effective upon publication in the Kansas Register).


The Kansas Department of Revenue issued an opinion letter clarifying the taxability of fees collected for rides or tours. If a ride or tour is advertised or otherwise held out primarily for sightseeing or entertainment, then the fee is considered recreation or entertainment, rather than transportation services and is, therefore, subject to Kansas sales tax. (Opinion Letter No. 0-2008-007, Kansas Department of Revenue, October 28, 2008).



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