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In a recent private letter ruling, the Kansas Department of Revenue explained that items purchased for use in fabricating metal roofs on job sites are sourced to the jurisdiction of the delivery warehouse rather than the jurisdiction of the job site. For certain businesses, fabrication work at a job site is an essential part of performing their construction contract. These businesses are treated as contractors, requiring payment of sales tax when they take delivery of equipment used to form articles they install. In addition, contractors may not claim the integrated plant exemption on equipment purchases. (Private Letter Ruling No. P-2005-017, Kansas Department of Revenue, June 23, 2005)


The Kansas Legislature extended the effective date of the retail portion of the Enterprise Zone Act to 2010. This act provides that a retail business that meets criteria outlined in the Act may qualify for a sales tax exemption. The outlined criteria include: 1) the retail business must exhibit documented job expansion involving at least two additional full-time employees and 2) either a) locate or expand to a city that has a population of 2,500 or less as determined by the United States Federal Census or b) locate or expand to a location outside of a city having a population of 10,000 or less prior to July 1, 2010. (Kansas H. 2164, Enacted March 28, 2005)


In a Question and Answer discussion published by the Kansas Office of Policy and Research, the state discussed the sales and use tax treatment of photographers and photofinishers. It was stated that these types of taxpayers are treated as retailers and must collect sales tax on the selling price of their goods. They may not take deductions from sales tax for separately stated charges such as sitting fees or other expenses. Photographers may claim exemptions when purchasing chemicals, film, paper and other materials that become “a component part of the photographs being sold.” Photographers and photofinishers may take an exemption when purchasing developing or printing services from a third party. Photographers and photofinishers that operate retail stores and sell goods to consumers may purchase for resale such goods sold to consumers. If resold to customers, items such as photo albums, picture frames and cameras will fit this exemption. No Kansas sales tax is due when the photographer or photofinisher delivers the products to a buyer or the buyer’s agent in another state. (Kansas Department of Revenue, Questions and Answers, March 16, 2005)


The Kansas Supreme Court found that a taxpayer’s purchase of telecommunications equipment was not exempt from Kansas sales tax as machinery or equipment used in manufacturing tangible personal property. The court found that Kansas law defines telecommunications as a service and not a form of tangible personal property. The court also found that this decision does not violate the Equal Protection Clauses of the United States and Kansas Constitutions. The court stated that disparate treatment was not present due to the fact that other utility companies, such as electrical companies, are also taxed on their equipment for the reason that the service of providing electricity is not a form of tangible personal property, but a service. (Kansas Supreme Court, Appeal of Sprint Communications Co., L.P., from an Order of the Division of Taxation for a Refund of Sales Tax, Dec. 17, 2004)


Under recent legislation, the implementation of destination-based sourcing rules may be postponed in Kansas. Retailers in Kansas are currently required to comply with destination-based sourcing rules required under the Streamlined Sales and Use Tax Agreement. These rules came into effect on January 1, 2005 after a six month delay from the original implementation date. If enacted, House Bill 2131 would once again delay the destination-based sourcing rules in Kansas until Congress grants the state authority to require some out-of-state, remote sellers to collect and remit sales tax. During that time period, specific transactions such as utilities and the leasing of telecommunications equipment would continue to be subject to destination-based sourcing. Other transactions would revert to origin based sourcing. Destination-based sourcing rules would be restored to all taxable sales only in response to appropriate Congressional action. (Important Update for Destination-Based Sourcing, Kansas Department of Revenue, January 18, 2005; H.B. 2131, introduced January 21, 2005)



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