Pub. KS-1526 Business Taxes for Motor Vehicle Transactions
This publication provides information as to how Kansas taxes apply to the sale, rental or lease of motor vehicles and related transactions. Using common industry examples, it explains the transactions that are taxable and those that are exempt.
Also included is information about how to report and pay the taxes. By law, businesses are required to submit their Sales, Compensating Use and Withholding Tax returns electronically. Kansas offers several electronic file and pay solutions – see page 17.
Use this publication as a supplement to Kansas Department of Revenue’s basic sales tax Publication KS-1510, Kansas Sales and Compensating Use Tax. Motor vehicle dealers and other retailers will find our Publication KS-1520, Kansas Exemption Certificates, very useful as well.
Table of Contents
- SALES BY KANSAS DEALERS
- TRANSACTIONS BETWEEN NON-DEALERS
- VEHICLE LEASES AND RENTALS
- COMPENSATING USE TAX
- NONTAXABLE VEHICLE TRANSACTIONS
- EXEMPT SALES
- VEHICLE REPAIR AND SERVICE
- RELATED TRANSACTIONS
- ADDITIONAL TAXES AND REQUIREMENTS
- REPORTING AND PAYING SALES TAX
- KANSAS CUSTOMER SERVICE CENTER
- TAXATION RESOURCES AND FORMS
- TAXPAYER ASSISTANCE
- K.A.R. 92-19-30 and K.A.R. 92-19-30a
As a general rule the retail sale, rental or lease of automobiles, motorcycles, trailers, trucks, etc. within the state of Kansas is subject to state and local Kansas Retailers’ Sales Tax. Vehicles purchased outside of Kansas, and subsequently registered in Kansas, are subject to Kansas Compensating Use Tax. Vehicles sold in Kansas are also subject to a local compensating use tax when the rate at the seller’s location is different than the rate at the buyer’s location.
This publication will address whether sales or compensating use tax is due on a particular vehicle transaction, and if so, the rate that is due, to whom it is paid, when it is paid, and how it is paid. Throughout this publication we will cite or refer to the statute (K.S.A.), regulation (K.A.R.), or Kansas Department of Revenue’s written advice applicable to that section. A list of the laws and regulations on which this guide is based is provided herein. See Taxation Resources herein.
Throughout this guide the term vehicle will be used. Unless otherwise specifically noted, the term vehicle will include all automobiles, cars, motorcycles, motorized bicycles, pickups, trucks, SUVs, trailers, vans, etc. as defined by K.S.A. 8-126 cited below.
Vehicle: every device upon or by which any person or property is or may be transported or drawn upon a public highway, excepting devices moved by human power or used exclusively upon stationary rails or tracks.
Motor vehicle: every vehicle, other than a motorized bicycle, or motorized wheelchair, which is self-propelled.
Truck: a motor vehicle which is used for the transportation or delivery of freight and merchandise or more than 10 passengers.
Motorcycle: every motor vehicle designed to travel on not more than three wheels in contact with the ground, except any such vehicle as may be included within the term “tractor” as herein defined.
Motorized bicycle: every device having two tandem wheels or three wheels, which may be propelled by either human power or helper motor (or both) and which has:
- a motor producing not more than 3.5 brake horsepower;
- a cylinder capacity of not more than 130 cubic centimeters;
- an automatic transmission; and
- the capability of a maximum design speed or no more than 30 miles per hour.
Farm tractor: every motor vehicle designed and used as a farm implement power unit operated with or without other attached farm implements in any manner consistent with the structural design of such power unit.
Trailer: every vehicle without motive power designed to carry property or passengers wholly on its own structure and to be drawn by a motor vehicle.
Semitrailer: every vehicle of the trailer type so designed and used in conjunction with a motor vehicle that some part of its own weight and that of its own load rests upon or is carried by another vehicle.
Farm trailer: every trailer, and every semitrailer, designed and used primarily as a farm vehicle.
Pole trailer: any two-wheel vehicle used as a trailer with bolsters that support the load, and do not have a rack or body extending to the tractor drawing the load.
SALES BY KANSAS DEALERS
A vehicle dealer is any individual, partnership, corporation or other entity actively engaged in the business of buying, selling or exchanging new or used motor vehicles, motorcycles, travel trailers, trailers or trucks and who has an established place of business in Kansas. Kansas law requires that individuals who sell five or more vehicles within one calendar year is required to be licensed as a vehicle dealer in the state of Kansas.
A dealer must meet certain requirements set forth by the Department of Revenue’s Division of Vehicles and must also be registered with its Division of Taxation to collect sales tax from customers. See Related Transactions herein for more information about dealer licensing requirements.
WHAT ARE GROSS RECEIPTS?
As a general rule, sales tax is due on the gross receipts received by a dealer on the sale of a motor vehicle. Gross receipts is the total selling price or the total amount received in money, credits, property or other consideration valued in money, excluding discounts allowed and credited, but including freight and transportation charges.
For vehicle dealers this means that sales tax is collected on the total selling price of the vehicle whether specific items are separately stated on the invoice or not, including (but not limited to):
- Base selling price
- Options & add-ons
- Dealer prep fees
- Administrative & handling fees
- Transportation, delivery & freight charges
- Undercoating protection
- VIN Etch
- All warranties, maintenance or service agreements
The following are not subject to Kansas sales tax involving the sale of a motor vehicle when separately stated on the invoice: interest, finance or carrying charge on installment purchases and Guaranteed Auto Protection (GAP) insurance.
EXAMPLE: An Anytown, KS car dealer sells a new auto with a sticker price of $28,995 to a Kansas resident for $26,500 plus freight of $385. The dealer also charges an administrative fee of $75 for processing the title, paper work, etc., and installs a spoiler for an additional $950. Sales tax is due at the 7.5% Anytown sales tax rate on $27,910:
$26,500 + $385 + $75 + $950 = $27,910. $27,910 X .075 = $2,093.25 sales tax
What follows is an explanation of the sales tax treatment of other common elements of the sale of a new or used motor vehicle.
In-House Rebates/Dealer Discounts
In-house rebates or dealer discounts are not subject to sales tax. These sales incentives are not subject to sales tax as they constitute a reduction in the amount of gross receipts received by the seller.
For the period July 1, 2018 through June 30, 2024, manufacturer’s rebates that are paid directly to the retailer (dealer) for the purchase or lease of a new motor vehicle are exempt from sales tax. Additional manufacturer’s rebates for items of tangible personal property that are attached to the vehicle, such as running boards, brush guards, trailer hitches, etc. are exempt from tax if they are shown on the bill of sale and are paid directly to the dealer. These rebates are subject to tax if they are not shown on the bill of sale for the original purchase, or if they are paid directly to the purchaser.
A manufacturer’s option-package incentive that reduces the cost of the vehicle simply reduces the purchase price to which tax is applied.
Motor vehicle dealers, please note: To report transactions that include a tax exempt manufacturer’s cash rebate you will include the amount of the rebate as part of “gross receipts” and then report a deduction on Part II, line N “Other allowable deductions.”
EXAMPLE: General Motors offers a $2,500 rebate on some of its models. A dealer’s sales invoice would read as follows:
Price of Vehicle $ 26,000.00
Less Trade-in - 6,300.00
Less Mfr. rebate - 2,500.00
Total Taxable Price 17,200.00
9.15% sales tax
Sales tax due 1,573.80
Total Amount due 18,773.80
Kansas dealer sells a new car for $26,000, and arranges financing. As part of the transaction, the purchaser assigns its right to the manufacturer’s rebate of $2,500 to the dealer and instructs the dealer to use it to pay the first installment payments owed to the financing company. Dealer should charge sales tax on the $26,000 with no allowance for the rebate.
Kansas dealer sells a new car for $26,000. GM, the company that manufactured the car, issues a $3,000 rebate check to the purchaser. The dealer should charge sales tax on the $26,000 with no deduction for the rebate - as the manufacturer’s rebate was paid to the purchaser rather than being assigned to the dealer as part of the purchase of a new motor vehicle.
A trade-in involves accepting a vehicle in exchange for credit against the purchase of another vehicle. Dealers should charge sales tax on the net price or trade difference — after the trade-in allowance.
EXAMPLE: A 2011 automobile is taken in trade for a 2015 model. The dealer’s invoice to the customer would read as follows:
2015 model selling price $ 26,000.00
Trade-in allowance -6,300.00
Trade difference $ 19,700.00
7.5% tax rate + 1,477.50
Customer payment $ 21,177.50
In general, the value of a trade-in to a Kansas dealer is an allowable deduction from the gross selling price of a vehicle. A trade-in means tangible personal property that is, or becomes, part of the dealer’s inventory held for resale.
EXAMPLE: When a dealer accepts property that is not tangible personal property which becomes part of its inventory the transaction shall be considered to be a taxable barter and not a trade-in that reduces the tax base for the customer. A trade-in allowance shall not be allowed:
- on vehicle transactions between individuals since the trade-in property does not become a part of inventory held for resale;
- on transactions where a dealer transfers merchandise in or out of its own resale inventory in exchange for other property it also owns;
- when the purchase and trade-in are not part of a single transaction.
- for insurance recoveries for damaged or destroyed property assigned or paid to a dealer;
- when the trade-in vehicle is titled to a person or entity that is different from the buyer and the hypothetical transfer of the trade-in vehicle from the person or entity to the buyer would not qualify for one the exceptions set forth in K.S.A.2003 Supp. 79-3603(o) and amendments thereto.
EXAMPLE: Mrs. Whalen trades her 2012 Nissan, valued at $12,000, to Maarberg Motors for a 2014 model valued at $23,000. Maarberg Motors should allow Mrs. Whalen a $12,000 trade-in allowance and sales tax should be collected on $11,000.
EXAMPLE: Mr. Thomas trades his 2015 pickup, valued at $21,000, to Maarberg Motors for a 2011 model with a value of $15,000. Maarberg Motors should allow Mr. Thomas a trade-in allowance limited to $15,000 since the value of the trade-in exceeds the value of vehicle received by Mr. Thomas. Mr. Thomas will not pay any sales tax on this transaction.
EXAMPLE: A Kansas motor vehicle dealer takes a boat and trailer valued at $5,000 in trade for a pickup with a retail selling price of $27,000. Since the dealer is going to place the boat and trailer in his inventory for resale, a trade-in deduction of $5,000 should be allowed with the purchaser paying sales tax on a tax base of $22,000. The sales tax rate charged is the combined state and local (city, county and/or special jurisdiction) rate in effect at the dealer’s place of business.
EXAMPLE: Farmer Jones trades a 2012 John Deere tractor for a pickup truck at Holiday Motors, a Kansas motor vehicle dealer. Since Holiday Motors is placing the tractor in inventory for resale, it may give farmer Jones a trade-in allowance for the value of the tractor even though no sales tax was paid on the selling price of the tractor when originally purchased by farmer Jones.
EXAMPLE: Mr. Brown wants to gift a car titled in his name to his grandson for use as a trade-in on a pickup truck offered by the local dealership. The dealership cannot give a trade-in allowance on this car unless title to the vehicle is in the grandson’s name at the time of the trade.
EXAMPLE: Mrs. Black is leasing a 2011 Buick and wants to trade it for a 2014 model. Since she does not have an ownership interest in the 2011 Buick, a dealer cannot give a trade-in allowance on the value of the 2014 Buick.
EXAMPLE: Mr. Allen sells his 2012 Honda to a neighbor, Mr. Jacobs, and uses the proceeds of the sale ($6,000) as a down payment on a 2015 model offered by a local dealership for $24,000. The dealership cannot give a $6,000 trade-in allowance to Mr. Allen as the sale to Mr. Jacobs and subsequent purchase from the dealership constitute two separate sales transactions.
EXAMPLE: Ms. Hill totals her 2010 Kia and her insurance company pays her $15,000 in settlement thereof. She desires to assign the $15,000 insurance check to Max Motors as down payment on a replacement model that sells for $20,000. Max Motors cannot give a trade-in allowance and must charge sales tax on the $20,000 sales price.
The general rule is that sale of a warranty, service contract or maintenance contract for motor vehicles is subject to sales tax [K.S.A. 79-3603(r)]. A warranty or similar agreement is taxable whether purchased at the time a vehicle is purchased, or purchased separately at another time.
The sale of warranty and service or maintenance agreements/contracts are considered to be part of the selling price of a motor vehicle, semi-trailer, pole trailer or aircraft. Thus, a trade-in allowance may be applied to the cost of a warranty.
EXAMPLE: Mr. Marshall trades his 2013 pickup, valued at $18,000, to Axel Motors for a 2008 model with a value of $10,000. Mr. Marshall purchases an extended warranty for an additional $1,000 ($11,000 total purchase). Mr. Marshall may claim a trade-in allowance for the total purchase of $11,000 since the value Mr. Marshall’s trade-in exceeds the value of vehicle received from the dealer, and the warranty is considered part of the gross receipts received from the sale of the pickup. See Warranty Work herein.
Additionally, sales of warranty/service contracts to nonresidents of Kansas are not subject to Kansas sales tax when purchased simultaneously with a motor vehicle, semitrailer, pole trailer, or aircraft that will not be registered in Kansas and that the nonresident will remove from Kansas within 10 days of the sale. Warranty contracts purchased in Kansas separate from the sale of a motor vehicle, semi-trailer, pole trailer or aircraft by a nonresident are subject to Kansas sales tax. See Dealer Sales to Nonresidents herein.
DEALER SALES TO RESIDENTS OF KANSAS
Retail sales of vehicles by Kansas dealers are subject to sales tax on the gross receipts (defined previously) received by the dealer.
EXAMPLE: A Sample, KS car dealer sells a pickup for $19,500 to a Kansas resident. The dealer is required to collect sales tax on $19,500 at the rate in effect at the dealer’s place of business (6.5% state tax and 2% local tax).
$19,500 X .085 = $1,657.50
Upon collection of the sales tax due, the dealer will give the buyer a completed ST-8 or DST-8 (electronic version) Statement of Kansas State and Local Retail Sales Tax Paid, showing the sales tax base and the amount of sales tax paid to the dealer.
The buyer must submit a copy of the ST-8 or DST-8(electronic version) receipt to the County Treasurer when the automobile is registered in the Kansas county in which the buyer resides. If the buyer is a resident of another city or county, the buyer may owe a local compensating use tax on the sale. This tax is payable to the County Treasurer when the vehicle is registered. See Local Compensating Use Tax -Intrastate Sales herein.
DEALER SALES TO NONRESIDENTS OF KANSAS
Kansas law [K.S.A. 79-3606(k)] allows Kansas dealers to sell or lease motor vehicles, semitrailers, pole trailers, and aircraft to nonresidents of the state of Kansas without collecting Kansas sales tax when all three of these requirements are met. See Revised Notice 04-13.
- The buyer is a bona fide resident of another state.
- The motor vehicle, semitrailer, pole trailer or aircraft will not be registered in Kansas or based in Kansas.
- The motor vehicle, semitrailer, pole trailer or aircraft will be removed from the state of Kansas within 10 days.
To document the exempt sale of a motor vehicle, semitrailer, pole trailer or aircraft to a nonresident, form ST-8B Affidavit of Delivery must be completed and retained by the dealer. This form is commonly referred to as a 10-day drive out permit. Like other exemption certificates, the original affidavit must be kept with the dealer’s other sales tax records for at least three years, in case of an audit by the Kansas Department of Revenue.
IMPORTANT: Motorized bicycles and trailers (other than semi-trailers and pole trailers defined earlier herein), or any other vehicle that is not self-propelled, cannot be sold exempt from sales tax to a nonresident of Kansas. Only motor vehicles, semitrailers, pole trailers, or aircraft as defined by K.S.A. 8-126, can be purchased sales tax exempt by nonresidents of Kansas under this exemption. See Revised NOTICE 04-13 (on our website) for a further discussion of this issue. Aircraft transactions are discussed herein.
EXAMPLE: A Kansas City, KS dealer sells a pickup for $19,500 to a Missouri resident. The dealer is not required to collect Kansas retailers’ sales tax on the $19,500, provided that the pickup will be removed from Kansas within 10 days and the pickup will not be registered in Kansas.
In the previous example, the Kansas dealer may issue the Missouri buyer a 30-day permit; who would then register the pickup in their Missouri county of residence and pay applicable Missouri compensating use taxes. If the Missouri resident intends to register the pickup in Kansas, or if the vehicle is not removed from Kansas within 10 days of the sale, the dealer is required to collect sales tax.
Kansas law K.S.A. 50-645(c) provides that when a manufacturer or its authorized dealer is unable to conform a motor vehicle to any applicable warranty after a reasonable number of attempts, the purchaser is authorized to return the vehicle and obtain a refund of the full purchase price including all collateral charges (i.e., Kansas sales tax) less a reasonable allowance for the purchaser’s use of the vehicle. This provision is commonly referred to as the Lemon Law.
EXAMPLE: A car, originally purchased for $20,000, is returned to a Kansas dealership pursuant to the provisions of the above-described Lemon Law. $19,000 is refunded to the customer. Kansas sales tax is refunded on the $19,000.
TRANSACTIONS BETWEEN NON-DEALERS
ISOLATED OR OCCASIONAL SALE
When any person (individual, partnership, corporation, etc.) other than a licensed Kansas motor vehicle dealer sells a vehicle it is referred to as an isolated or occasional sale. The seller is not responsible for collecting, reporting and remitting Kansas retailers’ sales tax to the Department of Revenue on isolated or occasional sales of vehicles. Rather, the purchaser is required to pay the sales tax due to the County Treasurer when registering the vehicle in the Kansas county in which he or she is a resident.
Tax Base - Sales Price
The sales or use tax base for the isolated or occasional sale of a motor vehicle or trailer is the actual selling price of the vehicle [K.S.A. 79-3603(o)]. The County Treasurer will calculate the sales tax due based on the sale price as entered on the vehicle title. A Bill of Sale is NOT required if the sale price is entered on the vehicle title.
Pursuant to provisions of K.A.R. 92-19-30, the sales tax on the isolated or occasional sale of motor vehicles or trailers shall be computed on its fair market value by the Director of Taxation under either of the following circumstances:
- the selling price of the vehicle is unknown; or,
- the stated selling price is not indicative of, and bears no reasonable relationship to, the fair market value of the vehicle.
The actual selling price shall be the base for computing the tax on the sale of wrecked or damaged vehicles.
The Trade-in Allowance For Isolated or Occasional Sales Are Limited to Motor Vehicle AND Trailers
In an isolated or occasional sale (trade), the fair market value of any motor vehicle or trailer traded in by the purchaser to the seller may be deducted from the selling price.
EXAMPLE: Sue trades her vehicle plus $500 to Leila. Sue owes sales tax to the County Treasurer only on the $500. Leila does not owe any sales tax.
K.S.A. 79-3603(o) provides that “in determining the base for computing the tax on such isolated or occasional sales, the fair market value of any motor vehicle or trailer traded in by the purchaser to the seller may be deducted from the selling price.”
EXAMPLE: Sue trades her 2012 Oldsmobile to Dale for a 2012 Ranger fishing boat and trailer. A trade-in allowance may be allowed to the extent of the fair market value of the trailer.
Each person claiming a sales tax credit for a vehicle or trailer traded for another vehicle or trailer must file form TR-12 Affidavit to a Fact or form TR-312 Bill of Sale with the County Treasurer. A Bill of Sale is NOT required if the sale price is entered on the vehicle title.
NOTE: When an individual sells a vehicle and uses the proceeds thereof to purchase another vehicle, sales tax is due on the total purchase price of the purchased vehicle. The sale of one vehicle and the subsequent purchase of another does not constitute a trade for which a trade-in allowance is allowed.
RATE OF TAX (IN-STATE PURCHASE)
The general rule for isolated or occasional sales of vehicles or trailers is that they are subject to sales tax at the rate in effect where the sale was made. If the sale negotiations occur in different cities, the site of the sale (for local sales tax purposes) is the place where the vehicle was kept at the time negotiations first occurred.
EXAMPLE: A Wichita resident viewed, test drove and made an offer to purchase a car located in Salina. The exchange of money, title and the auto took place in Newton. At registration, the County Treasurer will use Salina as the location of the sale – where the vehicle was located when the negotiations first took place.
The above rule identifies where the sale was made. Once established, the County Treasurer will collect the highest sales tax rate between the rate in effect where the sale was made and the vehicle’s registration address. See Local Compensating Use Tax - Intrastate Sales herein.
RATE OF TAX (OUT-OF-STATE PURCHASE)
A Kansas resident who purchases a vehicle from outside of Kansas is required to pay sales tax to the County Treasurer at the rate in effect at his place of residence and not the rate of tax in effect at the County Treasurer’s Office.
Many states allow nonresidents of their states to purchase motor vehicles without tax when (or if) the vehicle is removed from their state and will not be used in their state. However, there are some states that require sales tax be paid on the purchase of a motor vehicle even when the motor vehicle will be removed from their state (for example, Arizona, California, Florida, Indiana, New York, and Michigan to name a few).
If a motor vehicle is purchased from one of such states, the buyer may receive credit for the taxes paid to the other state not to exceed the Kansas sales tax liability when the vehicle is registered in Kansas. The buyer must provide the County Treasurer’s office proof of taxes paid to the other state in order to receive credit.
EXAMPLE: A Shawnee County Kansas resident buys a car from a Nebraska resident (car located in Nebraska). The rate of tax due is the rate in effect in Shawnee County, where the purchaser lives and not the rate in effect in Topeka, KS – where the Shawnee County Treasurer is located.
VEHICLE LEASES AND RENTALS
Dealers are required to collect sales tax on the total amount of each lease/rental payment with no deduction for insurance, taxes, service or maintenance contracts, handling or administration charges, late fees, repair or service charges, or any other charges regardless of how any contract, invoice or other evidence of the transaction is stated or computed and whether separately billed or segregated on the same bill.
EXAMPLE: A Hays, KS dealer enters into a 36-month lease on a car to a Russell, KS resident for $450 per month plus property taxes of $50 and administrative fees of $25 per month. Sales tax is due each month on the total lease payment of $525 ($450 + $50 + $25 = $525).
No Trade-In Allowance For Lease Vehicles
When a leased/rented vehicle is traded for another leased/ rented vehicle or for a purchased vehicle, no sales tax trade-in deduction is allowed.
EXAMPLE: Dale entered into a 48-month lease of a car. Ten months into the lease, he trades the car for a pickup truck. Dale is not allowed a trade-in deduction on the value of the leased car toward his purchase (or lease) of the pickup truck.
Kansas Vehicle Rental Excise Tax
Rentals, not exceeding 28 days, of vehicles with a gross vehicle weight not exceeding 12,000 pounds are also subject to the Kansas Vehicle Rental Excise Tax. This tax is in addition to Kansas retailers’ sales tax, and is computed on the same tax base. A sample rental car bill may appear as follows:
Daily Rental Rate $ 19.99
Excess Mileage Charge 7.50
Fuel Charge 8.25
SUBTOTAL $ 40.74
Kansas Sales Tax (7.3%) 2.97
Vehicle Rental Excise Tax (3.5%) 1.43
TOTAL $ 45.14
RATE OF TAX ON LEASES AND RENTALS
The rate of sales tax due on leases and rentals of motor vehicles, trailers, semi-trailers, or aircraft depends on whether or not the payment thereof involves periodic payments. See NOTICE 03-05.
Leases or rentals that involve periodic payments are subject to the rate of sales tax in effect at the primary property location. If during the term of the lease the lessee moves to another jurisdiction and registers the vehicle there, the state and local sales tax charged on the lease payments due after the move will be the rate in effect at the new primary property location (registration address). Down payments and cap cost reductions made at the dealership are considered to be part of the lease. Thus, these payments are sourced to the primary location of the vehicle.
EXAMPLE: A Pleasanton, KS dealership leases a pickup to a Lenexa resident for 48 months at $500 per month. The purchaser paid $2,000 down at the dealership. The rate of tax charged on the $2,000 down payment and each lease payment is the rate in effect at the primary property location – the Lenexa registration address. Then after 18 months the lessee moves to Topeka and registers the pickup there. The rate of tax charged by the Pleasanton dealership on each lease payment will now be the rate in effect at the new primary property location – Topeka.
No Periodic Payments
The rate of sales tax due on leases and rentals of motor vehicles, trailers, semi-trailers or aircraft that do not involve a periodic payment is subject to the rate of sales tax in effect at where the customer takes delivery.
EXAMPLE: Rent-A-Bomb, a Topeka used car rental company, rents a car for $100 a week. When the customer takes delivery of the car at Rent-A-Bomb’s place of business – the rate of sales tax would be the rate in effect in Topeka.
Dealers and rental car companies may purchase the vehicles they intend to lease or rent (rental inventory) free of sales tax because they will collect sales tax based on the gross receipts received from each lease or rental of the vehicle. Dealers should use a Kansas Resale Exemption Certificate to make a tax-exempt purchase of the vehicles they intend to sell, rent or lease.
EXAMPLE: XYZ Autos, a new car dealer, purchases several new Fords it intends to enter into long term leases with one of its commercial customers. The purchase of these cars is tax exempt with a Resale Exemption Certificate. XYZ Autos will collect sales tax on each of the lease payments.
Furthermore, all parts and labor services to repair, service or maintain a vehicle in a lease or rental inventory may be purchased exempt from sales tax by the lessor (dealer or rental agency) with a Resale Exemption Certificate.
EXAMPLE: Before placing a newly acquired vehicle into service, Rent-A-Bomb, a used car rental company, has a local mechanic service the engine and perform some repair work. All of the parts and labor services are exempt from sales tax when Rent-A-Bomb provides the mechanic with a properly completed Resale Exemption Certificate. See also Exempt Purchases herein.
COMPENSATING USE TAX
WHAT IS COMPENSATING USE TAX?
Compensating Use Tax is a tax paid on goods and merchandise (including vehicles) purchased in other states and used, consumed or stored in Kansas upon which no sales tax was paid or, another state’s (and local) sales tax was paid at the time of purchase, but the rate was less than the Kansas rate. In general, use tax is due when an item is shipped from one state into another whereas, sales tax is due when the sale wholly takes place with the geographical boundaries of Kansas.
The Kansas compensating use tax rate is equal to the Kansas sales tax rate. In the case of vehicles, the rate of use tax due on a vehicle purchased outside Kansas is equal to the Kansas retailers’ sales tax rate in effect at the registration address of the vehicle.
EXAMPLE: A Kansas City, KS resident buys a car in Missouri and registers it in Wyandotte County. Legally, the tax that is due is Kansas compensating use tax and not Kansas retailers’ sales tax. The rate of Kansas use tax is equal to the rate of tax in effect at the vehicle registration address – in this case the Kansas City, KS sales tax rate.
Generally, the tax base for Kansas compensating use tax on vehicles and vessels (boats) is the same tax base as for Kansas retailers’ sales tax. However, use tax is imposed on the use, storage or consumption of an article of tangible personal property within Kansas, and not on the sale of tangible personal property as required by sales tax.
The import of this distinction is that compensating use tax is not due on labor services that are subject to Kansas sales tax. As a general rule, labor to service, repair, alter or maintain a motor vehicle is taxable - but only when the labor is performed in Kansas. Thus, compensating use tax would not be due on the sale of labor services performed in another state that are separately stated on the invoice.
EXCEPTIONS TO COMPENSATING USE TAX
There are two instances when vehicles purchased outside the state of Kansas and subsequently registered in Kansas are not subject to Kansas compensating use tax. The first is when a sales/use tax equal to or greater than the Kansas rate has already been paid to another state [K.A.R. 92-19-30(l)(2)].
The second is when the first actual use of the vehicle was outside of Kansas [K.A.R. 92-20-13]. The following examples illustrate these exceptions.
Taxes Legally Paid to Another State
When a person purchases a vehicle and legally pays a sales or use tax to another state, equal to or greater than the Kansas rate due, no Kansas compensating use tax is due when the vehicle is subsequently registered in Kansas.
EXAMPLE: Mr. Peacock buys a van and registers it in Kentucky, paying 8% Kentucky sales tax (6% state and 2% local). A week later, Mr. Peacock moves to Ingalls, KS. Since the 8% Kentucky rate paid is equal to or greater than the Ingalls combined rate of 7.65%, no Kansas compensating use tax is due. [K.A.R. 92-19-30(l)(2)]
K.A.R. 92-19-30(l)(2) provides that when a purchaser has paid state and local sales tax to another state at a rate that is less than Kansas state and local use tax rates where the vehicle is registered, the purchaser shall pay Kansas state and local use tax to the county treasurer at a rate that is equal to the difference between the combined state and local tax rates for the Kansas location and the combined state and local tax rates that were used to determine the tax paid to the other state.
EXAMPLE: Jed buys a car in Missouri and pays their sales tax of 5%. Three months later he moves to Anytown, KS (tax rate of 7%). When he registers the vehicle with his Kansas address he will pay the difference between the two rates (2%) to the County Treasurer. (The first use of the car was less than 6 months; see First Actual Use that follows.)
EXAMPLE: A car is bought in Alaska – a state that does not impose a sales tax. When the car is subsequently registered in Kansas, the full state and local rate of Kansas tax in effect at the registration address will be due, unless the first actual use test has been met.
First Actual Use
Under provisions of K.A.R. 92-20-13, use tax may not be due on an automobile purchased outside of the state of Kansas if: 1) when the motor vehicle was purchased, it was intended for bona fide use outside of the state of Kansas, 2) the first actual use of the automobile was outside of the state of Kansas, and 3) the first actual use of the motor vehicle was substantial and constituted the primary use for which the motor vehicle was purchased. The Department of Revenue’s position is that substantial use in another state consists of a minimum of six months of use in the other state.
EXAMPLE: In January, an Ohio resident buys a car in Cleveland for her use. In August of that year, she moves and registers the car in Kansas. No Kansas use tax is due since the first use of the car was substantial (more than six months).
EXAMPLE: A United States Air Force officer buys a car in Germany and pays no sales tax. A year later, the officer is reassigned to Wichita, KS. No Kansas use tax is due as the first actual substantial use of the automobile was outside of Kansas.
LOCAL COMPENSATING USE TAX -INTRASTATE SALES
Kansas law requires that intrastate (within Kansas) sales of vehicles that are required to be registered for operation on streets and highways — automobiles, trucks (regardless of gross weight), motorcycles, motorized bicycles and trailers — be subject to the highest local sales tax rate between the rate in effect: 1) where the sale took place; and, 2) at the buyer’s registration address (purchaser’s residence or place of business).
This local compensating use tax law [K.S.A. 12-199] applies to all in-state vehicle sales; it does not apply to vehicle rentals or leases (see IMPORTANT that follows). As with the collection and payment of sales tax, the only difference is how and to whom the tax is paid.
When a vehicle is purchased from a dealer, the dealer will collect the full rate of state and local sales tax in effect at the dealer’s location. If the sales tax rate is higher at the dealer’s place of business than at the purchaser’s residence, there is no additional local use tax to be paid to the County Treasurer by the purchaser when the vehicle is registered. However, if the sales tax rate is higher at the purchaser’s residence (or place of business if purchasing the vehicle for business use) than at the dealer’s place of business, then the dealer collects the full amount of sales tax in effect at the dealer’s location and the customer pays the difference to the County Treasurer when the vehicle is registered.
EXAMPLE: A car is purchased from a dealer located in Shawnee County by a customer from Lawrence. The dealer will collect the rate of sales tax in effect in Shawnee County, and the Douglas County Treasurer will collect the additional local use tax (the difference between the Shawnee County rate and the higher Lawrence rate) when the buyer registers the car in Douglas County.
CAUTION: Vehicle owners who attempt to register their vehicles in a county other than the one in which they reside may be subject to a fine of not less than $1,000 nor more than $5,000. [K.S.A. 8-149]
IMPORTANT: The local compensating use tax on intrastate vehicle sales also applied to vehicles leased for over 28 consecutive days when it was imposed on July 1, 2002 (see NOTICE 02-05). However, with the passage of the Streamlined Sales Tax Act (effective 7/1/03) leases and rentals of motor vehicles are no longer subject to the higher sales tax rate between lease location and vehicle registration address. The sales tax rate applied to the lease or rental of a vehicle is now determined by whether or not payment of the lease is by periodic payments. For more information, see Rate of Tax on Leases & Rentals herein and NOTICE 03-05.
NONTAXABLE VEHICLE TRANSACTIONS
This section explains each of the vehicle transactions that are not subject to Kansas sales tax by operation of statute or regulation (see K.A.R. 92-19-30).
TRANSFER SOLELY IN EXCHANGE FOR STOCK
No sales tax is due on the transfer of a vehicle by an individual to a corporation solely in exchange for stock in the corporation. If the individual receives any consideration other than stock in the corporation, the transfer is subject to sales tax based on the fair market value of the vehicle.
However, when a vehicle is transferred from a corporation back to an officer, shareholder, board member, or corporation employee, said transfer shall be presumed to be a taxable transfer — to be made in consideration for services rendered by the officer, shareholder, board member, or employee to the corporation, and as such, is a taxable transfer.
SALES BETWEEN IMMEDIATE FAMILY MEMBERS
The sale or transfer of an automobile, light truck (gross weight of 12,000 pounds or less), trailer, or motorcycle between immediate family members is exempt from sales tax.
Immediate family members are defined as lineal ascendants and descendants and their spouses [K.S.A. 92-19-30(h)]. Accordingly, every sale of a vehicle (with or without a lien thereon), between immediate family members is exempt from sales tax when form TR-215 Affidavit of Relationship is completed. Vehicle sales that qualify include:
- parent to son or daughter (including adopted children and step children) and their spouses;
- son or daughter to mother or father (including step parents);
- son-in-law or daughter-in-law to parent-in-law;
- grandparent to a grandchild or to the grandchild’s husband or wife; and
- grandchild to a grandparent or grandparent’s spouse.
Sales between brothers, sisters, aunts, uncles, nephews, nieces, and cousins are not sales between immediate family members and do not qualify for this exemption. See NOTICE 95-09 for more information.
EXAMPLE: Mrs. Lew transfers title to a 2008 Corvette to her son Lucky. The World-Wide Credit Union has agreed to assumption of the outstanding loan on the Corvette of $6,000by Lucky. No Kansas sales tax is due as this is a transfer between immediate family members.
Certain vehicle transfers do not meet the definition of a sale for sales tax purposes, and are therefore, not subject to sales tax. A bona fide gift is such an example. To qualify as a tax-free gift, the transfer of the vehicle must be given without any consideration, and given with the intent of the donor that the transfer be a gift.
A transfer of a vehicle is presumed to be a gift when: 1) the transferee is the spouse, mother, father, brother, sister, child, grandmother, aunt, uncle, niece or nephew of the transferor; and, 2) money is not exchanged as part of the trade or exchange.
If money is exchanged for the vehicle, the transfer is taxable, unless the transfer is between immediate family members as described above. Furthermore, the transfer will be subject to sales tax if the vehicle is subject to a lien and the recipient of the vehicle is legally obligated to satisfy the lien as this exchange constitutes consideration exchanged for the vehicle.
EXAMPLE: Ed Martin transfers title of a van to his nephew, Frank. The van is subject to a lien with First National Bank and the bank will allow Frank to assume the loan. Sales tax is due on the selling price (typically, the amount of the assumed loan) of the van as this transfer is a sale and not a gift. NOTE: Had this transfer taken place between immediate family members, it would have been a nontaxable transfer.
When the transferee is not a spouse, mother, father, brother, sister, child, grandmother, aunt, uncle, niece or nephew, the person claiming that the transfer is a gift shall submit proof of this claim to the satisfaction of the County Treasurer or Director of Taxation.
MOTOR VEHICLE INSURANCE
The Department of Revenue is responsible for collecting sales tax when it is due to the State of Kansas, and the Kansas Insurance Department is responsible for enforcing Kansas law regulating what insurance companies must include in the settlement of claims. Nothing in these guidelines pertains to what insurance companies owe to owners of vehicles in settlements for damage or loss.
Questions concerning claims settlements should be directed to the Kansas Insurance Department. Its Consumer Assistance Hotline is 800-432-2482. The Consumer Assistance Division can be contacted by email at email@example.com.
No sales tax is due to the Department of Revenue when an owner assigns title of a vehicle to an insurance company as part of a settlement. In like manner, no sales tax is due to the Department of Revenue when the owner retains a vehicle as part of the settlement.
In general, sales tax is due to the Department of Revenue on the repair of a damaged vehicle whether the bill is paid for by an insurance company or the owner. No sales tax is due on the repair of items (such as farm machinery) exempt under the provisions of K.S.A. 79-3606.
When a vehicle is purchased to replace a vehicle that has been stolen or damaged, the purchase of a replacement vehicle is not exempt. The purchase of a replacement vehicle is taxable, whether the replacement vehicle is purchased by the owner of the vehicle that was stolen or damaged or by an insurance company that purchases the replacement vehicle.
Premiums paid to insure motor vehicles and/or drivers are not subject to Kansas sales tax. Likewise, GAP (Guaranteed Auto Protection) premiums are not subject to sales tax in Kansas.
Change of Name
A change of owner’s name on a title when there is no transfer of vehicle ownership to a different person or entity is not a sale and is not taxed. See Form TR-12.
EXAMPLE: Maryssa Janette Doe has elected to take back her maiden name as part of her recent divorce. This change of name is not a sale and, therefore, is not subject to sales tax.
A transfer of a vehicle to an heir or legatee by will or pursuant to the inheritance or intestate laws of any state is not a sale and is not subject to Kansas sales or use tax. A certified copy of the probate court order making the distribution must be filed with the County Treasurer at the time of registration. See Form TR-12.
The sale of a vehicle to a person or organization who will transfer it to the winner of a drawing or raffle is subject to sales tax. The subsequent transfer of the vehicle to the winner of the drawing or raffle is considered to be a gift and not subject to sales tax. However, when title to a vehicle is transferred from a motor vehicle dealer directly to the winner of a drawing or raffle, the winner is liable for the sales tax to be collected by the motor vehicle dealer. Moreover, whenever a vehicle is won as a prize and sales tax has not been paid to Kansas or another state, the winner of the vehicle shall pay Kansas sales or compensating use tax when the vehicle is registered with the County Treasurer.
EXAMPLE: A Kansas dealer donates a car to an annual charity auction and the title will be transferred from the dealer to the highest bidder at the auction. The dealer will collect sales tax on the car from the highest bidder based on the auction price.
EXAMPLE: A qualified fund raising organization obtains title to a car from a dealer (at cost) with the intent to raffle the car. Kansas sales tax is paid by the organization to the dealer. The subsequent transfer to the winner of the raffle is not subject to sales tax, as the transfer qualifies as a gift.
When title to a vehicle is transferred to the holder of a lien as a result of the buyer’s failure to pay the installments due (repossession) under the terms of a written agreement entered into at the time of original purchase, the transfer is not a sale and is not taxable. However, any registration or subsequent sale of the vehicle by the encumbrance holder is taxable, unless the vehicle is redeemed by the original owner of the vehicle. See K.S.A. 84-9-506 and Revenue Ruling 19-1997-1.
A lien holder may also acquire title to a vehicle through a court-ordered foreclosure of a mechanic’s lien, landlord’s lien, storage lien, or other statutory lien. The sales tax rules for a lien foreclosure are the same as for a repossession.
- The transfer of title to the lien holder is not taxed providing the lien holder does not register the vehicle.
- Any registration or subsequent sale of the vehicle by the lienholder is taxable.
- The redemption of a vehicle from a lien holder by a debtor who satisfies the underlying debt is not considered to be a sale and therefore is not subject to sales tax.
The situations in the example that follows illustrate the three types of title transfers that occur as a result of a repossession or lien foreclosure.
EXAMPLE: Mr. Gordon is making payments on his new car to The National Bank. Mr. Gordon has title to the vehicle; The National Bank is the lien holder on the title.
Situation 1. The National Bank repossesses the car from Mr. Gordon for failure to make the payments. No sales tax is due when The National Bank obtains a title for the repossessed vehicle in its name.
Situation 2. Mr. Gordon (the original owner) brings his payments current and redeems the car from The National Bank, whereby the title is transferred from the bank back to Mr. Gordon. This title transfer is not considered to be a sale and is therefore not subject to sales tax.
Situation 3. Mr. Gordon did not redeem the vehicle, and it was subsequently sold by the bank to Ms. Cruz. The bank will collect the state and local sales tax on the gross receipts it receives, and issue a sales tax receipt (ST-8 or DST-8 (electronic version)) to Ms. Cruz. If the bank is not registered to collect sales tax, Ms. Cruz will pay the sales tax to the County Treasurer at the time of registration.
Kansas vehicle dealers are responsible for collecting the full amount of sales tax due on each vehicle sold to, or serviced for, the final user or consumer in Kansas (see also Retailer Responsibilities herein). A dealer is only relieved from collecting and remitting the sales tax if, at the time of the purchase, the dealer obtains the required information contained on an exemption certificate, and keeps the certificate as part of its sales tax records for three years. [K.S.A. 79-3651]An exemption certificate is a document completed by the buyer that shows why sales tax is not due on an otherwise taxable sale of goods or services. The certificates commonly needed for vehicle transactions are included in this publication. As discussed previously, form ST-8B Affidavit of Delivery of a Motor Vehicle serves as the exemption certificate when a motor vehicle, semitrailer, pole trailer, or aircraft is sold to a nonresident who will register and title it outside Kansas.
You will also use exemption certificates when buying the vehicles, parts and labor services that you intend to sell, rent or lease to customers (see Exempt Purchases herein). Dealers should obtain a copy of Pub. KS-1520, Kansas Exemption Certificates. This publication defines Kansas sales tax exemptions, how to use exemption certificates as a buyer and seller, and contains most of the blank sales exemption certificates.
DIRECT PURCHASES BY EXEMPT ENTITIES
One of the most common types of exempt sales made by vehicle dealers is the sale to an entity that has been granted an exemption under Kansas law from paying sales (or use) tax on all of its direct purchases of tangible personal property or taxable services. (All sales tax exemptions are applicable to all compensating use tax situations.) The most common exempt entities are bulleted below. For a complete list of all sales tax exempt entities see Pub. KS-1520.
- The U.S. Government, its agencies and instrumentalities
- The state of Kansas and Kansas political sub-divisions – cities, counties, school districts, etc.
- Elementary and secondary schools
- Parent-Teacher Organizations (PTA or PTO)
- Nonprofit educational institutions
- Nonprofit hospitals
- Nonprofit blood, tissue and organ banks
- Nonprofit 501(c)(3) historical societies
- Nonprofit 501(c)(3) museums
- Nonprofit 501(c)(3) primary care clinics
- Nonprofit 501(c)(3) religious organizations
- Nonprofit 501(c)(3) zoos
The designation of 501(c)(3) refers to a section of the federal Internal Revenue Code exempting certain organizations from income tax. However, not all nonprofit organizations are exempt from sales tax. Only the above-cited entities are exempt from sales tax on their purchase (or lease) of a vehicle, or its repair, provided that the appropriate sales tax exemption certificate is obtained by the retailer or by the County Treasurer (when a vehicle is purchased from an individual).
To be exempt as a direct purchase, the sales price of the vehicle must be billed directly to the exempt buyer and paid for by funds from the exempt buyer. Loans from financial institutions paid directly to a dealer would constitute a direct purchase. Purchases made by agents or employees of an exempt buyer with their personal funds are taxable.
EXAMPLE: Ms. Feinstein, an employee of a 501(c) (3) religious organization, buys a car with funds from a personal loan. Ms. Feinstein will use the car in performing her employment duties, and she will be reimbursed the costof the car by the 501(c)(3) religious organization. This sale is subject to sales tax because it is not a direct sale to the501(c)(3) religious organization.
Exempt entities (in the previous list) may also purchase the parts and labor to repair or maintain their vehicles without sales tax when they provide a properly completed exemption certificate to the dealer or retailer.
EXAMPLE: Your car dealership has been awarded the annual contract to service the city’s vehicles. The city should provide you with its Department of Revenue-issued form PR-78KS Tax Exempt Entity Exemption Certificate.
NOTE: The city may complete one “blanket” exemption certificate to cover all work done on the city’s vehicles for the duration of the contract. More information about this exemption certificate that covers multiple exempt transactions is in Pub. KS-1520.
MOBILITY ENHANCING EQUIPMENT
An exemption exists for equipment and special accessories that qualify as mobility enhancing equipment. K.S.A. 793606(r) provides a sales tax exemption on the purchase price of said equipment, including repair and replacement parts for the equipment. To qualify, there must be a written prescription issued by a person licensed to practice the healing arts and the attachable accessory must provide or increase the ability to move from one place to another and is appropriate for use either in a home or a motor vehicle, but not generally used by persons with normal mobility. Examples of qualifying items are special hand and foot controls, wheelchair lifts, etc. The equipment on a motor vehicle normally provided by a motor vehicle manufacturer and the vehicle itself are not exempt.
This sales tax exemption applies to the purchase price of the mobility enhancing equipment and repair and replacement parts for the mobility enhancing equipment. The exemption also extends to the labor services to install, repair or service the accessory. A retailer who sells an accessory that qualifies for this exemption would retain a copy of the written prescription in its records as proof as to why sales tax was not collected on the selling price of the accessory(ies) sold and installation or repair charges.
EXAMPLE: Deb is confined to a wheelchair for mobility purposes and purchases a conversion van. As part of the sale the dealer provides and installs a wheelchair lift on the van. The dealer is provided a written prescription from a person licensed to practice the healing arts so the purchase price of the lift is exempt from sales tax including the installation labor charges. Should the lift need repair at a later date, any replacement parts and repair labor charges for the wheelchair lift would be exempt with a copy of the prescription order.
INTERSTATE COMMON CARRIERS
Kansas law exempts from Kansas retailers’ sales tax the sale of new or used rolling stock (including buses, trucks and trailers) and the repair or replacement materials and parts, but not the labor, purchased by a motor carrier for immediate and direct use in interstate commerce. To qualify for the sales exemption, the motor carrier may be engaged in interstate commerce and haul for the general public. A carrier must furnish the retailer with a properly completed form ST-28J Interstate Common Carrier Exemption Certificate to claim an exemption on a vehicle or its parts.
EXAMPLE: ABC Tire Service replaces a tire on a UPS truck (UPS hauls goods in interstate commerce for the general public). While sale of the tire is exempt from sales tax with the ICC Exemption certificate, any labor for removing the old tire and installing the new tire is taxable. (The tire sale is also subject to the Kansas Tire Excise Tax.)
The ICC exemption extends to purchasers who do not hold ICC authority themselves but lease to an entity that does hold ICC authority.
EXAMPLE: Joe Hill purchases a semi and trailer that he will lease to Roadway, Inc. (an ICC holder). Joe does not have ICC authority but he may purchase the semi and trailer exempt from sales tax by providing the dealer with a properly completed form ST-28J ICC Exemption Certificate.
SALES TO CERTAIN FOREIGN DIPLOMATS
Certain official personnel from foreign countries who are stationed in the United States are issued tax exemption cards by the U.S. State Department, Office of Foreign Missions (OFM). Their level of tax exemption while in the United States is determined by the level of tax exemption granted to our official personnel stationed in their country. The plastic tax exemption cards have a photo ID, are valid nationwide and identify the level of exemption.
The OFM enforces the exemption of eligible foreign missions and their members when buying or leasing a vehicle. The purchaser must first present an OFM tax exemption card. The dealer must retain a copy of this card and contact OFM. OFM will determine the tax-exempt status of the purchaser and provide a letter to the seller as to whether or not the purchaser is eligible for exemption from sales or use tax on the vehicle sale. Only authorization letters provided directly from OFM to the seller are valid for tax-exemption on a vehicle sale.
Additional information is available from the OFM or its website at https://www.state.gov/vehicle-tax-exemption/.
VEHICLE REPAIR and SERVICE
Many Kansas dealers not only sell vehicles but also operate service departments and body shops. As a general rule, tools and equipment purchased by a dealership for use in its service department are subject to sales tax. These include, but are not limited to: alignment equipment, hand tools, power tools, vehicle lifts, welders, wrenches, etc.
Also taxable to a dealership/service department is office equipment, supplies, uniforms, shop rags, safety glasses, safety shoes, and newspaper and magazine subscriptions. Refreshments, coffee and snacks provided free of charge to employees and/or customers are also taxable.
Dealers are authorized to purchase some consumables exempt from sales tax with a properly completed form ST-28C Consumed In Production Exemption Certificate. Tax exempt consumables include sand paper, rubbing compounds, masking tape, thinners, etc. Of course, service departments and repair shops may always purchase items which they intend to resell exempt from sales tax with a properly completed fom ST-28A Resale Exemption Certificate. This includes not only the parts that will be sold over the counter, but also the parts that will be installed in customer’s vehicles by the dealer’s service technicians. See NOTICE 93-04.
As discussed above, the resale exemption also applies when a dealer is having repairs done to the vehicles it has in inventory for resale, or when subcontracting out the repair of a customer’s vehicle. This is because the dealer/service department is not the final consumer of the vehicle repair, but will collect sales tax from the vehicle buyer or the service department customer.
EXAMPLE: A dealer’s service department sends a customer’s radiator out to a radiator shop to be boiled out and repaired. The service department provides the radiator shop with a completed Resale Exemption Certificate so not to pay sales tax on the radiator repair parts and labor. Once the service department completes the vehicle repair, it collects sales tax from the customer on its total charges, including the charges for radiator work performed by someone else.
Kansas sales tax is due on any fees received for performing the labor service of repairing, servicing, altering or maintaining tangible personal property. Thus, all charges made to repair, service, alter or maintain a vehicle within the state of Kansas are subject to Kansas sales tax.
EXAMPLE: Mr. Crow takes his 2010 Jeep Cherokee to a local dealership for a wheel alignment, oil change, and body work on the passenger-side rear panel. Mr. Crow’s itemized bill from the dealership is as follows.
Wheel alignment $ 89.00
Oil (5 quarts) 10.00
Oil filter 8.00
Rear panel 385.00
Shop supplies 5.00
4 hrs. labor @ $45/hr 180.00
7.2% sales tax 48.74
Towing, winching, and jump-starting of vehicles, and the delivery of fuel are not specifically enumerated as taxable services in the sales tax act. Therefore, fees for performing these services are not subject to Kansas sales tax when they are separately stated on the invoice. However, sales tax is due on all articles of tangible personal property and all labor services which involve repairing, servicing, altering or maintaining tangible personal property.
EXAMPLE: You tow a customer’s car from his home to your service department for repair. If your towing fee is separately stated on the parts and labor repair bill, it is not subject to sales tax. If not separately stated, it is subject to sales tax as a part of the gross receipts received for repair of the car.
When repair work is performed under a warranty, maintenance or service contract without charge to the consumer, it is not subject to sales tax on the amount of the reimbursement received from the warrantor, whether reimbursement is in the form of money, credit, or the replacement of parts used to perform the repair work. However, a deductible or similar charge that the consumer is obligated to pay under the warranty, maintenance, or service contract is fully taxable and each retailer shall collect sales tax on the total charge paid by the consumer.
EXAMPLE: A new car buyer pays $900 for a 100,000 mile extended warranty. Sales tax is due on the $900 warranty. At 77,000 miles the oil pump fails and the cost to replace the engine is covered by the warranty. But the dealership charges $45 for oil, a filter, spark plugs, etc., that is not under the warranty, so the $45 charge is subject to sales tax.
Cancellation of a Warranty Contract
When a customer cancels a warranty contract before its expiration and the dealer/manufacturer issues a partial refund to the customer for the unused portion, Kansas retailers’ sales tax should be refunded to the customer.
EXAMPLE: A customer purchases a $1,000 extended warranty contract in January and then cancelled it in July – obtaining a $600 refund. Since the dealer collected sales tax at the time of purchase ($1,000 X .07 + $70.00), any amount refunded should include sales tax portion to the amount refunded ($600 X .07 + $42.00).
NOTE: The dealer can take a deduction when they file their July sales tax return. By claiming the deduction for returned goods, the dealer will reduce the amount of sales tax due on the July return. In effect, reducing the sales tax due on its return equal to the amount of sales tax refunded the customer. Further guidance regarding warranty work is provided by K.A.R. 92-19-62:
...“(d) If a retailer does not perform repair services under a warranty, maintenance or service contract, but instead has a third party perform the repairs, the third party’s gross receipts received from that retailer are not subject to sales tax. The third party shall secure an exemption certificate from the retailer which states:
(1) that the service performed by the third party was pursuant to a warranty, maintenance or service contract;
(2) that the retailer collected from the consumer sales tax on the total selling price of the warranty, maintenance or service contract; and
(3) the retailer’s sales tax registration number. If a retailer has collected a deductible or similar charge from the consumer, the retailer shall include the amount in the retailer’s taxable gross receipts, even though a third party may actually perform the service under the warranty, maintenance or service contract.
(e) Each retailer gratuitously providing parts, services or both to a consumer, is deemed to be the consumer of any materials, parts and third party services used. In this instance, each retailer shall pay sales tax to any third party service provider, report the cost of materials and parts on the retailer’s sales tax return, and pay the appropriate sales tax.”
There is no sales tax due on work for which there is no fee/charge. Recall work, to include parts and labor, which is provided free to the customer is not subject to sales tax. Reimbursement from a manufacturer to a dealer for the recall work is also not subject to sales tax. However, any other work the customer has you do while the car is in for recall work (such as an oil change, etc.) remains subject to sales tax.
WASHING AND WAXING
Kansas sales tax law imposes a tax on the washing and waxing of vehicles. Thus, sales tax is due on the gross receipts received for the service of washing and waxing of vehicles. Because it is a taxable service, car washing facilities qualify for a sales tax exemption on the water and electricity that is directly used or consumed in washing and waxing a vehicle. To claim the exemption, complete form ST-28B, Statement for Sales Tax Exemption on Electricity, Gas, or Water Furnished Through One Meter, on page 35. Electricity used for heating, lighting and cooling is subject to sales tax.
SALES TO FARMERS AND RANCHERS
Motor vehicles are a necessary and integral part of agribusiness. Trucks and trailers are needed to transport animals, grain, milk or other agricultural commodities. However, the statutory definition of exempt farm machinery and equipment [K.S.A. 79-3606(t)] specifically EXCLUDES passenger vehicles, trucks, truck tractors, trailers, semitrailers, or pole trailers. Only farm trailers and an implement of husbandry, as defined below, may be purchased as farm machinery and equipment.
A trailer may be exempt from sales or use tax as farm machinery and equipment. K.S.A. 8-126(z) defines a farm trailer as any trailer or semitrailer designed and used primarily as a farm vehicle. As outlined in Revenue Ruling 19-1997-3, there are two tests that a trailer must meet for exemption of as a farm trailer. It must be: 1) used only in farming and ranching; and, 2) designed to allow for farm or ranch use.
Used Only In Farming and Ranching
The buyer’s certification on form ST-28F Agricultural Exemption Certificate is sufficient to satisfy the first test. The trailer must be for the farmer’s or rancher’s own use in their farming or ranching operation. A trailer used to haul commodities, livestock or other goods for others, or used for a commercial purpose other than farming and ranching are uses that are incompatible with the exempt use.
Buyers who will use a trailer for an incompatible use are required to pay sales or use tax on it, and are not allowed to claim an exemption based on the exemption for farm and ranch machinery or equipment. If an exemption is later disqualified, the buyer will owe retailers’ sales or use tax on the original purchase price, plus penalty and interest.
EXAMPLE: A cattle rancher is buying a livestock trailer to haul cattle. This trailer will be exempt as a farm trailer provided the trailer will not be used for any other purpose. The farmer’s use of this trailer to haul commodities for another would make the purchase taxable.
Designed For Farm and Ranch Use
Trailers such as grain, flatbed, dump, tank, and van are designed to allow for farm and ranch work. When used only in farming and ranching, the purchase is exempt from sales and use taxes. Converter gears, utilized to facilitate the transport of farm trailers, are also exempt as farm machinery.
Kansas law does allow an exemption from sales tax for vehicles defined as an implement of husbandry. However, implements of husbandry are subject to sales tax when tagged for operation on streets and highways (including farm tags):
...“Implement of husbandry” means every vehicle designed or adapted and used exclusively for agricultural operations, including feedlots, and only incidentally moved or operated upon the highways. Such term shall include, but not be limited to:
(1)A farm tractor;
(2)a self-propelled farm implement;
(3)a fertilizer spreader, nurse tank or truck permanently mounted with a spreader used exclusively for dispensing or spreading water, dust or liquid fertilizers or agricultural chemicals, as defined in K.S.A. 2-2202, and amendments thereto, regardless of ownership;
(4)a truck mounted with a fertilizer spreader used or manufactured principally to spread animal dung;
(5)a mixer-feed truck owned and used by a feedlot, as defined in K.S.A. 47-1501, and amendments thereto, and specially designed and used exclusively for dispensing food to livestock in such feedlot.
IMPORTANT: The purchase of a truck that does not contain a fertilizer spreader, nurse tank, mixer-feed, etc. is not exempt from sales tax. For example, the purchase of a truck and a subsequent purchase (two separate transactions) and mounting of the spreader, tank, etc. does not exempt the original purchase of the truck.
Property Installed or Mounted
Kansas state and local sales tax is imposed on the total selling price of each motor vehicle or trailer and includes all tangible personal property mounted, installed, applied or otherwise attached or affixed to the motor vehicle/trailer. K.A.R. 92-19-30a provides that:
...“the retailer shall not exclude or deduct for the tangible personal property, regardless of how any contract, invoice or other evidence of the transaction is stated or computed, and whether separately charged or segregated on the same contract or invoice.”
EXAMPLE: A farmer is buying a new truck with a dealer-installed grain box. The truck and the grain box are both subject to the applicable state and local sales tax, despite the fact that the grain box may qualify for exemption as farm machinery and equipment. (Had the grain box not been purchased in connection with the sale of the motor vehicle, it would be exempt from sales tax.)
EXAMPLE: A dealer sells and installs a grain box on a truck owned by a farmer. The sale and installation of the grain box are exempt from sales tax as farm machinery and equipment. The dealer shall accept form ST-28F Agricultural Exemption Certificate from the farmer.
ALL TERRAIN VEHICLES (ATVS)
ATVs* do not qualify for the farm machinery and equipment sales tax exemption. Although often used on a farm or ranch, ATVs are not farm machinery/equipment and are therefore subject to Kansas sales or use taxes. See NOTICE 06-02.
* All-terrain vehicle means any motorized nonhighway vehicle, 48 inches or less in width, having a dry weight of 1,000 pounds or less, traveling on three or more low-pressure tires, and having a seat designed to be straddled by the operator. As used in this subsection, low-pressure tire means any pneumatic tire six inches or more in width, designed for use on wheels with rim diameter of 12 inches or less, and utilizing an operating pressure of 10 pounds per square inch or less as recommended by the vehicle manufacturer. (Emphasis added.)
EXAMPLE: A Kansas farmer purchases an ATV in Nebraska and has the dealer deliver it to him in Kansas. The farmer will use the ATV to work cattle. Kansas compensating use tax is due on the total purchase price of the vehicle, including the delivery charge. If purchased within the state of Kansas, Kansas retailers’ sales tax is due.
Like the vehicle itself, accessories for an ATV are also taxable because they generally do not directly contribute to a production process.
WORKSITE UTILITY VEHICLES
The sale of a work-site utility vehicle* that is equipped with a bed or cargo box for hauling materials may be purchased exempt from sales tax under the farm machinery and equipment sales tax exemption if used only in farming, ranching or aquaculture production.
* Work-site utility vehicle means any motor vehicle which is not less than 48 inches in width, has an overall length, including the bumper, of not more than 135 inches, has an unladen weight, including fuel and fluids, of more than 800 pounds and is equipped with four or more low pressure tires, a steering wheel and bench or bucket-type seating allowing at least two people to sit side-by-side, and may be equipped with a bed or cargo box for hauling materials. (Emphasis added.)
As a general rule, the retail sale (or rental) of an aircraft in the state of Kansas is subject to Kansas Retailers’ Sales Tax. There are three general exceptions to this rule:
1) Sale to ICC carrier or a foreign government.
2) Sale to a bona fide nonresident of Kansas registering the aircraft out of state within 10 days.
3) The isolated or occasional sale of an aircraft.
The major exception to the general rule is sales of aircraft, repair parts or labor services to a certified or licensed carrier (or its agent) of persons and/or property involved in interstate or foreign commerce, or to a foreign government.
EXAMPLE: Cessna sells an aircraft to U.S. Air, a licensed carrier in interstate commerce. The sale is exempt from sales tax. To document this exempt aircraft sale, Cessna will obtain a completed form ST-28L Aircraft Exemption Certificate from the airline.
The second exception is the sale of an aircraft to a nonresident of Kansas when the aircraft is not to be registered or based in Kansas, and it will not remain in Kansas more than 10 days from the date of purchase. This exception is identical to the motor vehicle exception for nonresidents.
EXAMPLE: A Hollywood actor comes to Wichita and buys a LearJet. She removes the LearJet within 10 days, registering it in California. No Kansas sales tax is due.
A third exception is the isolated or occasional sale exemption. The sale of an aircraft between individuals or entities may be exempt from sales tax if the requirements of an isolated or occasional sale are met. The definition of an isolated or occasional sale is that the SELLER cannot have more than two sales of that type in a 12 month period and the SELLER cannot have purchased the aircraft with the intent to resell it. If these two requirements are met, the isolated or occasional sale of an aircraft is exempt from sales tax.
NOTE: This isolated/occasional sales tax exemption is not available for “motor vehicles” or “trailers.” [K.S.A. 79-3603(o)]
EXAMPLE: Jared, a Kansas resident, owns a plane that he uses for recreational purposes and decides to sell it to a fellow pilot. The sale is not subject to sales tax as Jared did not have more than one sale within a 12-month period, and did not acquire the plane for the purpose of reselling it.
As noted earlier in this publication, the sale of a trailer is generally subject to sales tax.
In-State Sales By Dealers
Kansas trailer dealers are required to collect Kansas retailers’ sales tax (state and local sales taxes) when the purchaser takes possession of a trailer in Kansas. The dealer will provide the purchaser with the same sales tax receipt (ST-8 or DST-8 (electronic version)) as a motor vehicle dealer. This rule applies even when the purchaser is a bona fide resident of another state and the trailer will be removed from Kansas and registered in another state. (Only motor vehicles, semi-trailers, pole trailers and aircraft can be purchased by nonresidents exempt from Kansas sales tax.)
EXAMPLE: Bill, a resident of Missouri, buys a motorcycle trailer from a Kansas dealer. Even though the trailer will be removed from Kansas within 10 days of the purchase date and will be registered and tagged in Missouri, Kansas retailers’ sales tax must be collected on the trailer by the Kansas dealer. (Had Bill also purchased a motorcycle from the same dealer, there would be no Kansas sales tax on the motorcycle because it qualifies for a 10-day drive-out permit.)
EXAMPLE: A Missouri resident buys a motorcycle trailer from a Kansas dealer. The Kansas dealer is obligated, as part of the sale, to deliver the trailer to a Missouri location. No Kansas sales tax is due [K.A.R. 92-19-29]. (By making the delivery to Missouri in their own vehicle, the Kansas dealer may have established nexus or a physical presence in Missouri, and be obligated to register and collect Missouri use tax on its trailer sales to Missouri customers.)
Out-of-State Trailer Purchases
Anyone purchasing a new or used trailer from an out-of-state dealer must pay state and local Kansas compensating use tax at the County Treasurer’s office. Like Kansas sales tax, Kansas use tax is imposed on the dealer’s gross selling price, less any trade-in or other allowable discount (such as a dealer’s discount). Gross selling price includes every item of the sale: the trailer, accessories, manufacturer’s rebate, extended warranties, optional warranties, freight and delivery charges. Credit against the compensating use tax is given for any state and local sales tax paid in the other state [K.A.R. 92-19-30(l)(2)].
Isolated or Occasional Trailer Sales
The isolated or occasional sale of any trailer (including those with a gross weight of 2,000 pounds or less) is subject to Kansas sales or compensating use tax [K.S.A. 79-3603(o)]. However, trailers with a gross weight of 2,000 pounds or less are not required to be tagged or registered [K.S.A. 8-143]. Gross weight means the empty weight of the trailer plus the maximum cargo weight of the trailer. If the owner elects to tag and register the trailer, the tax is paid to the County Treasurer. If the trailer is not tagged and registered, the tax is to be paid to the Kansas Department of Revenue.
The retail sale, rental or lease of boats and watercraft (i.e., jet skis, etc.) is subject to Kansas sales and compensating use tax. The sale of a boat or watercraft by a Kansas dealer to a nonresident of Kansas is subject to Kansas sales tax when the buyer takes possession of the boat in Kansas (see similar examples in previous column). There is no 10-day drive-out permit for boats.
The purchase of a boat from a dealer located inside or outside of Kansas is subject to both state and local Kansas use tax [K.S.A. 12-198]. The tax situs is the owner’s residence. The purchase of a boat from an individual located outside of Kansas may qualify for the isolated or occasional sales tax exemption. However, with the purchase of a boat and trailer sales tax is due the County Treasurer on the selling price or fair market value of the trailer, unless the trailer has a gross weight of less than 2,000 (see details above).
No Kansas sales tax is due on boat slip fees or rentals, or boat and/or trailer storage.
NATIVE AMERICAN RESERVATION SALES
The sale of a vehicle to a member of a Native American tribe which is negotiated, consummated and delivered within the boundaries of the federally recognized Native American Reservation in the state of Kansas occupied by his/her tribe is exempt from Kansas retailers’ sales and compensating use tax. To be exempt, the sale negotiations, signing of the purchase contract, exchange of consideration, and delivery all must be made within the boundaries of a federally recognized Native American Reservation, AND the Native American buyer must be a member of the tribe that occupies the federally recognized Native American Reservation on which the sale took place.
Before granting a tax exemption on a vehicle sale, County Treasurers should obtain a notarized statement from the vehicle dealer stating that all negotiations, signing of contracts, exchange of consideration and delivery of the vehicle were made within the geographical boundaries of a federally recognized Native American Reservation, to a Native American who is a member of the tribe that occupies the Reservation where the sale of the vehicle took place.
Vehicles sold or leased to Native Americans are subject to sales tax when the sale is made in Kansas unless the dealer is located on the reservation. Kansas motor vehicle dealers are prohibited from conducting sales away from their established place of business, therefore, cannot lawfully deliver vehicles to the reservation without specific written permission from the Director of Motor Vehicles.
Native Americans are subject to use tax when purchasing a vehicle outside Kansas, to the extent provided by K.S.A. 79-3704(c) and K.S.A. 79-3705 and the vehicle is used off the reservation. Any vehicle that is licensed in Kansas shall be presumed to be used off the reservation. See also, Revenue Ruling 19-2002-1 and Kansas law involving the licensure of vehicle sales, K.S.A. 8-2401 et seq, specifically K.S.A. 8-2480.
IMPORTANT: Motor vehicle dealers are limited to specific geographical areas in which they may make sales of motor vehicles, which may or may not include Native American Reservations. Contact the Director of Vehicles if you have questions as to whether a specific motor vehicle dealer is authorized to make sales on a federally recognized Native American Reservation.
Director of Vehicles
Kansas Department of Revenue
P.O. Box 2369
Topeka, KS 66601-2369
REGISTRATION BY MANUFACTURERS
Automotive manufacturers may register a vehicle which they have manufactured in their own name (e.g., General Motors wants to title and register a new Chevrolet in its name). The County Treasurer will collect Kansas retailers’ sales tax on the car, using 50% of the vehicle’s suggested retail selling price as the sales tax base. This is because a manufacturer will not pay tax on its own labor to manufacture the vehicle; by agreement, 50% of the cost is materials and 50% is labor.
REGISTRATION BY DEALERS
The registration of a vehicle by a Kansas licensed motor vehicle dealer constitutes the taking of tangible personal property from inventory — a taxable transaction. When registering the vehicle in the dealership name, the dealer will pay the applicable state and local sales tax to the County Treasurer based on the cost of the vehicle to the dealer.
When a vehicle is registered by a Kansas licensed motor vehicle dealer for the purpose of subsequently leasing the vehicle, the dealer will claim a resale exemption (see Rental Fleet herein). Sales tax is not due when the dealer registers the vehicle because the dealer will collect sales tax on each lease payment. To claim an exemption, the dealer must provide the County Treasurer with form ST-28A Resale Exemption Certificate.
When a vehicle which has been registered by a licensed dealer, upon which sales tax has been paid, is sold, or title is otherwise transferred in a taxable transaction within 15 days from the date the vehicle was registered by the dealer, the taking of the vehicle from a stock of goods and the subsequent transfer shall constitute a single transaction for sales tax purposes. Upon the subsequent transfer, the dealer shall collect sales tax from the ultimate consumer and may apply for credit from the Director of Taxation for the tax paid by the dealer to the County Treasurer. Registration by a dealer and subsequent sale in excess of 15 days from the date the vehicle was registered by the dealer shall constitute two (2) separate and taxable transactions.
EXAMPLE: On March 1 a licensed Kansas motor vehicle dealer takes a car out of inventory, registers it in her name and pays the sales tax on her cost ($19,000) to the County Treasurer. On March 16, the same dealer sells the car to a customer and collects sales tax on the selling price ($20,000). The dealer may not apply to the Director of Taxation for a refund of the sales that was paid by the dealer (on the $19,000) to the County Treasurer.
ADDITIONAL TAXES AND REQUIREMENTS
Kansas law requires that any individual that sells five or more vehicles within one calendar year is required to be licensed as a vehicle dealer in the state of Kansas. Dealer licensing is administered by the Division of Vehicles within the Department of Revenue. All inquiries about dealer licensing should be directed to Dealer Licensing at 785-296-3621 or visit our website and select Vehicles for additional contact information.
FEDERAL EXCISE OR “LUXURY” TAX
The federal excise tax (also referred to as the luxury tax) on sales of luxury passenger vehicles expired after December 31, 2002. However, this tax continues to apply to payments received for long-term leases of luxury passenger vehicles entered into before January 1, 2003. When due, this federal tax is in addition to the Kansas retailers’ sales tax and should be separately stated on the invoice. If the tax is not separately stated, it becomes part of the total gross receipts of the sale, and therefore part of the sales tax base subject to state and local sales tax. For more information about this and other federal business taxes, contact the IRS (Internal Revenue Service).
VEHICLE RENTAL EXCISE TAX
Kansas also imposes a Vehicle Rental Excise Tax of 3.5% (.035) on the gross receipts received from the rental or lease not exceeding 28 days of a motor vehicle having a gross vehicle weight not exceeding 12,000 pounds. This tax is in addition to the Kansas retailers’ sales tax and is computed on the same tax base (including taxes, insurance, etc.). The amount of this tax is not subject to sales tax if it is separately stated on the invoice.
EXAMPLE: Auto Rentals of Sampletown, KS rents a midsize auto for $199 per week and is required to collect Kansas retailers’ sales tax on the $199 ($199 X 7.3% = $14.53) and the separately stated vehicle rental excise tax ($199 X 3.5% = $7.76) for a total amount weekly payment of $221.29.
The vehicle rental excise tax is in lieu of ad-valorem (personal property) tax on these business assets. A rental car company collecting this excise tax on its gross receipts received from leases and rentals not exceeding 28 days is relieved of paying ad-valorem or property tax on its rental fleet when it furnishes the County Treasurer with: 1) proof that it has been issued a registration number for the vehicle rental excise tax by the Department of Revenue; and, 2) a list identifying each rental vehicle by license plate number, vehicle identification number (VIN), year, make and model.
Vehicles, usually rented for periods exceeding 28 days, are not subject to the vehicle rental excise tax, but are subject to the county ad-valorem (property) tax. The vehicle rental excise tax is not due on vehicles rented outside of Kansas.
TIRE EXCISE TAX
Kansas imposes a tire excise tax on the retail sale of new vehicle tires. There are two general types of new tire sales subject to the tire excise tax: 1) sale of new vehicle tires by a tire retailer; and, 2) sale of new tires mounted on a new or used vehicle sold at retail for the first time.
Therefore, all vehicle and implement dealers, as well as all tire retailers, must be registered with the Department of Revenue to collect this tax from its customers. Like Kansas sales tax, the tax is paid by the customer to the tire retailer or vehicle dealer. The retailer is responsible for collecting it from the final user or consumer. The retailer holds it in trust for the state and then remits it to the Department of Revenue on a regular basis using the form TE-1 Tire Excise Tax Return provided by the Department of Revenue.
The tire excise tax is 25 cents on each new vehicle tire sold and is in addition to any federal tax or Kansas sales tax due on these retail sales. This excise tax should be listed separately on the invoice for the new vehicle or new tires. Following are examples of sales subject to the tire excise tax.
- New tires sold to the final user or consumer, including, but not limited to individuals and corporations; farmers and ranchers; and, entities exempt from Kansas sales tax.
- New tires mounted on new vehicles.
- New tires installed on vehicles in Kansas even though the buyer is a resident of another state.
- New tires sold to a vehicle, implement, or equipment dealer for installation on a used vehicle being held for resale.
- New tires sold for a truck mounted with a spreader or a mixer-feed truck used to dispense feed in a feedlot.
- Tires sold to persons in the business of leasing and renting vehicles, including vehicles leased to interstate commoncarriers.
The tire excise tax is separate from Kansas sales tax. Some tire sales that are exempt from Kansas sales tax are subject to the tire excise tax. For example, new or used farm machinery and equipment, repair, and replacement parts (including new tires) are exempt from sales tax by law. However, when new tires for a combine are purchased, the tire excise tax is due. The new tires on a new combine are also subject to the tire excise tax.
Other tire sales that are exempt from sales tax but subject to the tire excise tax include the new tires on a new vehicle and new tires sold to interstate common carriers or to sales tax exempt buyers discussed previously. (Their exemption applies ONLY to the sales tax on their direct purchases of new tires; they are not exempt from paying the tire excise tax.) Only the U.S. Government is exempt from paying the tire excise tax. The tire excise tax does not apply to these tire sales:
- Used, recapped, or retreaded tires.
- A spare tire included in the sale of a new vehicle.
- New tires for vehicles not authorized or allowed to operate on public streets and highways, such as garden tractors, ATVs and wheelbarrows.
- New tires for vehicles powered by humans, such as bicycles and tricycles.
- New tires for mobile homes or manufactured homes.
- New tires delivered by the retailer to a point outside Kansas or delivered to an interstate common carrier for transportation to a point outside the state. (Seller must document these sales in their records by bill of lading or an invoice showing an out-of-state address.)
- New tires sold by one registered tire retailer to another registered tire retailer. A completed ST-28T Tire Retailer Exemption Certificate must be kept in the seller’s records for the exemption to be valid.
Vehicle and implement dealers as well as tire retailers should obtain Pub. KS-1530, Kansas Tire Excise Tax, from our website. This publication explains the tax and how to report and pay it in greater detail.
PERSONAL PROPERTY TAX
Vehicles are subject to an annual assessment of personal property tax. The property tax is administered by the county in which the vehicle is registered.
Businesses in general are also subject to personal property tax on their business use property to the county in which their business is located.
Inventory property tax exemption. A property tax exemption exists for a merchant’s inventory when the personal property, such as a vehicle, is held for sale in the ordinary course of business.
For more information about the personal property tax discussed here, contact the County Appraiser’s office in the county in which your business is located.
KANSAS WITHHOLDING TAX
This tax is deducted by employers and payors from wages paid to employees to prepay the employee’s income tax liability. In addition to being registered with the Kansas Department of Revenue (see Reporting and Paying Sales Tax), employers must register with the Kansas Department of Labor and the IRS. During the 2012 Legislative Session, House Bill 2117 was passed and signed into law. Provisions of the bill added new subtraction modifications to K.S.A. 79-32,117. The overall effect of these new provisions is to exempt certain categories of income from Kansas income tax. Although the net result for many taxpayers is a zero tax liability, filing a tax return is still required in order utilize the subtraction modifications. Also as a result the requirement for subchapter S corporations, partnerships, and LLCs to withhold Kansas income tax from nonresident shareholders, partners, and members or to make estimated income tax payments is no longer required.
For instructions and the computation of Kansas withholding tax, obtain a copy of KW-100, Kansas Withholding Tax Guide from our website.
REPORTING AND PAYING SALES TAX
In addition to your dealer’s license from the Division of Vehicles, you must register for sales tax; tire excise tax; and if you have employees, withholding tax.
To apply for a tax number or to register for Kansas Retailers’ Sales Tax, visit ksrevenue.gov and sign in to the KDOR Customer Service Center. After you complete the application you will receive a confirmation number for your registration and account number(s). For complete instructions about the application process, obtain Pub. KS-1216, Business Tax Application and Instructions, from our website.
Once your application is processed and reporting numbers are assigned, a registration certificate is issued. Your sales tax registration must be displayed in a conspicuous location in your business to let your customers know that you are duly registered to collect and remit the state and local sales tax.
Kansas retailers (vehicle dealers) are responsible for collecting the full amount of sales tax due on each sale to the final user or consumer. All Kansas retailers should follow this cardinal rule:
All retail sales of goods and enumerated services are considered taxable unless specifically exempt.
Therefore, for every sale of merchandise or taxable service in Kansas, the sales receipt, invoice, or bill must: 1) show that the total amount of sales tax due was collected; or, 2) be accompanied by a completed exemption certificate. Retailers who follow this rule will avoid the expense of having to pay sales tax on items they sold without collecting the tax or obtaining a completed exemption certificate.
COLLECTING TAX FROM YOUR CUSTOMERS
There are two acceptable ways to collect sales tax from your customers. The sales tax must either be separately stated as a line item on an invoice or included in the price of the item. The most common method is to separately state the tax due on the invoice, bill, receipt, or other evidence of the transaction. If the tax amount is a line item it must be clearly stated to the public as sales tax and there must be a separate line on the invoice or receipt for the sales tax. If the tax is included in the price, it must be clearly stated to the public that the price includes all applicable sales taxes. This method is often used when it is not practical to add the tax at the point of sale, such as vending machine sales or sales of concessions where a large volume of sales need to be made quickly.
CAUTION: When sales tax is included in the price, you must compute the total sales without tax before reporting the gross sales on the sales tax return.
Amounts collected as Kansas sales tax must be remitted to the state. If too much tax is collected, it must be refunded to the customer or remitted to the state.
IMPORTANT: It is illegal for a retailer to advertise to the public or any consumer (directly or indirectly) that the sales/use tax or any part of the tax will be paid or absorbed by the retailer; that the sales/use tax is not a part of the price to the consumer; or, that when sales/use tax is added to the price that all or part of it will be refunded.
It is important to keep adequate records of all aspects of your business operation. Good records allow you to accurately file the tax returns and claim any allowable deductions and exemptions. Your business tax records must contain the following documents and information:
- Gross receipts for the sale, rental or lease of all tangible personal property and all services provided in Kansas (taxable or nontaxable);
- allowable deductions claimed on sales tax returns;
- cost of all inventory, equipment and fixtures;
- all exemption certificates; and,
- a true, complete inventory taken at least once a year.
For sales and use tax purposes you must keep these records for your current year of business and three prior years. Some records (i.e., the purchase price of equipment and fixtures) must be kept longer for federal tax purposes.
YOUR FILING FREQUENCY
Sales tax returns are due on the 25th of the month following the end of the reporting period. How often you will file and pay your tax is determined by the volume of your retail business. The filing frequency for your first year of business is based on the estimated amount of tax liability you reported on your business tax application. (Most dealerships report their sales and tax collected on a monthly basis.) As the volume of your business changes, your filing frequency may also change.
Each year, the Department of Revenue reviews the reporting history of Kansas retailers to ensure their filing frequency is in accordance with the statutory guidelines [K.S.A. 79-3607]. The review is done late in the calendar year so that any necessary change will take effect on January 1 of the upcoming year. If you believe your filing frequency is not in line with the guidelines, contact our office (see back cover) to discuss your situation.
For more information about filing frequency requirements, obtain Pub. KS-1510, Kansas Sales and Compensating Use Tax, from our website.
KANSAS CUSTOMER SERVICE CENTER
FILE, PAY and MAKE UPDATES ELECTRONICALLY
Most businesses have chosen the KDOR Customer Service Center (KCSC) for their online filing and payment solution. To use this solution, you simply create a user login ID and select a password, then you can attach your business tax accounts. Each tax account has a unique access code that only needs to be entered once. This access code binds your account to your login ID. For future filings, you simply log into your account using your self-selected user login and password. A history of all filed returns and/or payments made is retained in the KCSC.
WHAT CAN I DO ELECTRONICALLY?
- Register to collect, file and pay taxes and fees
- Add new locations
- Complete and submit a Power of Attorney form
- Update contact information
- Update mailing address
- Upload W-2’s and 1099’s
- Upload and retain Sales and Compensating Use Tax jurisdictions
- File the following tax returns:
- Retailers’ Sales Tax•Retailers’ Compensating Use Tax
- Consumers’ Compensating Use Tax
- Liquor Drink and Liquor Enforcement Tax
- Make payments for the following taxes:
- Individual Income
- Individual Estimated Income
- Corporate Income
- Corporate Estimated Income
- Privilege Estimated Income
- Sales and Use
- Liquor Drink and Liquor Enforcement
- ABC Taxes and Fees
- Petition for Abatement Service Fee
- Motor Fuel
- Environmental and Solvent Fee
- Dry Cleaning Payment Plan Fee
- Tire Excise
- Charitable Gaming
- Vehicle Rental
- Cigarette Tax, Fees, Fines and Bonds
- Tobacco Tax, Fees, Fines and Bonds
- Transient Guest
REQUIREMENTS TO FILE and PAY
You must have the following in order to file and pay your taxes online:
- Internet Access
- Access Code(s) by calling 785-368-8222 or send an email to firstname.lastname@example.org
- ACH Debit: Kansas Department of Revenue debits the tax payment from your bank account
- ACH Credit: Complete an EF-101 online to initiate a tax payment through your bank
Electronic tax payments must settle on or before the due date. Using the KCSC, you may have your tax payment electronically debited from your bank account (ACH Debit) or you may initiate your tax payment through your bank (ACH Credit). This payment method requires a completed authorization EF-101, available on our Kansas Customer Service Center.
Our FREE electronic systems are simple, safe, and conveniently available 24 hours a day, 7 days a week. You will receive immediate confirmation that your return is filed and/or payment is received. If you need assistance with your access code, you may call 785-368-8222 or email email@example.com
PAY BY CREDIT CARD
Taxpayers can make their Individual Income tax and Business tax payments by credit card. This service is available on the Internet through third-party vendors; ACI, Inc (ACI) or Value Payment Systems (VPS). These vendors charge a convenience fee based on the amount of tax being paid. This fee may vary by vendor. Credit card transactions are strictly between the vendor and the taxpayer. Likewise, any disputes specific to the card payment will be between those two parties. Rules regarding the credit card transactions are available at each vendor’s website.
Credit cards that are available for each vendor are as follows:
ACI, Inc. (ACI)
- American Express
Payments can be made by accessing their website at www.acipayonline.com or by calling 1-800-2PAYTAX (1-800-272-9829). The Kansas jurisdiction code is 2600. For payment verification inquiries, call 1-866-621-4109. Allow 48 hours for processing. Tax types that can be paid through ACI, Inc. are as follows:
- Individual Income Tax Return
- Individual Estimated Income Tax
- Corporate Income
- Privilege Tax
- Liquor Tax
- Mineral Tax
- Motor Carrier Property Tax
- Motor Fuels Tax
- Sales and Use Tax
- Withholding Tax
Value Payment Systems (VPS)
- Bill Me Later ®
- Debit Card
VPS processes payments for Kansas Individual Income Tax only. For payment verification inquiries, call 1-888-877-0450. Allow 48 hours for processing.
Tax types that can be paid through Value Payment Systems are as follows:
- Individual Income Tax
- Individual Estimated Income Tax
Wire Transfers are accepted from both domestic and foreign banking institutions as long as it is received as American currency. For more information call 785-368-8222.
EXAMPLES AND STEPS FOR FILING RETURNS
This section contains examples and steps for completing Kansas retailers’ sales tax returns electronically. Steps for two different return types are illustrated: ST-16 for single jurisdiction filers whose filing status is not accelerated monthly (annual tax over $32,000); and ST-36 for dealers reporting more than one location/jurisdiction and/or whose filing status is accelerated monthly. This publication does not contain examples for completing a form CT-10U Kansas Consumers’ Compensating Use Tax return.
If you would like specific steps for that tax type, consult our Pub. KS-1510 (available on our website).
IMPORTANT: All of the examples that follow are for illustration purposes only so the sales tax rates used in them may not be current. Pub. KS-1700, available on our website, contains current sales tax rates for all Kansas taxing jurisdiction(s).
EXAMPLE #1 ST-16 – SALES TAX FILING FOR SINGLE JURISDICTIONS
David runs a small used car lot in Topeka, with approximately $200,000 of gross sales per year. He has registered with the Kansas Department of Revenue and because his annual sales tax collection are over $1,600, is required to remitand report Kansas retailers’ sales tax on a monthly basis. During the month of August David sold four used cars to customers for a total $33,500 (not including the tax). He also sold a car to another dealer for $6,000 and a pick-up truck to a different dealer for $2,400. Finally, he took one vehicle out of inventory to tag for his personal use. This vehicle cost David $10,000. The sales tax calculations and the August return are as follows.
Figure the total receipts for the month, exclusive of tax: $33,500 + $6,000 + $2,400 = $41,900
Go to ksrevenue.gov to begin the filing process. Sign into the KDOR Customer Service Center (KCSC). If you are a first time user click Register Now; if already registered, click Sign In.
After signing in to the KCSC, click Account Management to manage existing accounts or add new accounts to your current business accounts.
To add a new sales tax account, click Add an Existing or Register a New Account to this login and follow the instructions on the screen.
To file a return for a current account, locate that account in the list, then click Manage Account in the far right-hand column.
NOTE: Accounts that you add will be retained in the system for future filing periods.
To begin filing your return, click File a sales tax return under the Account Management heading. An informational page will appear with messages regarding important updates and/or tips for using the system. Please take the time to read this information before clicking Continue.
Review the information for the account you added. From the drop-down menu options, select your filing period, August, and tax year, then click the radio button for the return type. In this example, select Original. Click Continue to proceed to Part II.
Enter the nontaxable and exempt sales deductions by category in Part II of the return – $6,000 in line A and $2,400 in line N. Click Calculate to get your total deductions, then click Continue to proceed to Part I.
NOTE: The system will carry over to Part I the information you entered in Part II.
Enter your gross receipts on line 1 – $41,900. Enter the cost of the inventory used personally on line 2.
NOTE: Motor vehicle dealers are required to pay sales tax to the County Treasurer at the time of registration. Thus, the amount on line 2 is $0.
Select your payment option: ACH Debit, ACH Credit, or Check w/Voucher. For definitions of the ACH Credit and ACH Debit payment options, see page 19. Click Continue for the verification screen. Verify all entries and click Submit Return.
EXAMPLE #2 CT-10U – LOCAL COMPENSATING USE TAX
Referring to the example above, David sold three used cars. The sales price, customer’s residence, and sales tax rate for each are as follows: $6,890, Silver Lake (7.65%); $11,610, Topeka (9.15%); $10,000, De Soto in Johnson County (9.725%). When David sold these cars, he collected the sales tax rate in effect at his place of business within the city limits of Topeka (9.15% when this guide was published). David has no local compensating use tax obligations.
However, the customers who do not live in Topeka and therefore will register their vehicles in another city or county may owe a local compensating use tax (payable to the county treasurer for that county). This local use tax is due when the state and local tax rate where the vehicle is registered is higher than the sales tax rate at the dealer’s location.
The De Soto customer will pay Local Compensating Use Tax to the Johnson County Treasurer in the amount of $57.50 (9.725% -9.15% = .00575% X $10,000 = $57.50).
The Silver Lake and Topeka customers will not owe any Local Compensating Use Tax when they register their autos. Although the sales tax is lower in Silver Lake than at David’s place of business, no rebate of tax is due the Silver Lake customer.
EXAMPLE #3 ST-36 – SALES TAX FILING FOR MULTIPLE LOCATIONS AND/OR accelerated MONTHLY
IMPORTANT: Retailers reporting sales from more than one business location (whether permanent or temporary), or whose filing status is accelerated monthly must file using form type ST-36.
ABC Corporation, headquartered in Chanute, Kansas, owns dealer ships in Fredonia and Chanute. Both locations sell new and used vehicles and have service departments. The gross sales (without tax), merchandise consumed, and deduction amounts by category for each location are listed below. ABC Corporation is a pre-paid monthly filer; its pre-payment for September 1-15 was $14,000; the tax collected October 1-15 is $13,000.
|Gross Sales||$ 247,598.28||$ 178,520.45|
Deductions by Type:
|Resale||$ 3,129.57||$ 533.38|
|Out of state sales||3,000.00||0.00|
In the steps that follow, the instructions given are for the location of Chanute. When filing your return you will repeat these same steps for each location.
Go to ksrevenue.gov to begin the filing process. Sign into the KDOR Customer Service Center (KCSC). If you are a first time user click Register Now; if already registered, click Sign In.
After signing in to the KCSC, click Account Management to manage existing accounts or add new accounts to your current business accounts.
To add a new use tax account, click Add an Existing or Register a New account to this login and follow the instructions on the screen.
To file a return for a current account, locate that account in the list, then click Manage Account in the far right-hand column.
NOTE: Accounts that you add will be retained in the system for future filing periods.
To begin filing your return, click File a sales tax return under the Account Management heading. An informational page will appear with messages regarding important updates and/or tips for using the system. Please take the time to read this information before clicking Continue.
Review the information for the account you added. From the drop-down menu options, select your filing period, August, and tax year then click the radio button for the return type. In this example, select Original. You may choose to have the KCSC remember your jurisdictions by clicking that radio button, or you have the option to upload from another file or enter them manually. Make your selection and click Continue.
To add the applicable jurisdictions to this filing period, click Add Jurisdictions. Enter the jurisdiction code or the jurisdiction name, then click Lookup Jurisdiction. From the list, choose the appropriate jurisdiction (for example, Wichita is WICSG) and click Add Selected. Repeat this step until all applicable jurisdictions have been added, then click Continue.
Under Kansas Gross Sales enter the gross receipts (taxable and nontaxable) for the month in each local jurisdiction. For example, gross sales for Chanute is $247,598.28.
STEP 7Enter under Merchandise Consumed By You the cost of the goods consumed at each location upon which no sales tax has been paid. For example, the cost of merchandise consumed in Chanute is $1,241.18.
Enter under (Non-Utility) Deductions the total deductions (nontaxable and exempt sales) for each jurisdiction. For example, the deductions for Chanute are $56,429.57. Click Calculate and verify the net tax amounts, then click Continue.
Complete Part II. Itemize by category the deductions for all business locations on the applicable line. For this example you will have entries on lines A, B, C and M.
Note: Line O of Part II should equal the total of (Non-Utility) Deductions from Part III. Click Calculate and Continue.
Verify the information populated in Part I. As a accelerated monthly filer, enter the tax collected for the first 15 days of September on line 4, and enter the tax accelerated from line 4 of the July return on line 6. Click Calculate and Continue.
Select your payment option: ACH Debit, ACH Credit, or Check w/Voucher. For definitions of the ACH Credit and ACH Debit payment options, see page 21. Click Continue for the verification screen. Verify all entries and click Submit Return.
TAXATION RESOURCES AND FORMS
When there is a question not answered in this booklet, contact the Department of Revenue. Do not guess. Clarification of whether a purchase or sale is taxable or exempt will save you time in dealing with the issue in the future. Resolving issues of taxability could also save you money; you will be taking full advantage of the exemptions available and avoiding costly sales or use tax deficiencies on taxable purchases. Use the following Department of Revenue resources to obtain information and clarification on Kansas tax matters and to resolve questions of taxability.
TAXPAYER ASSISTANCE CENTER
This publication is a general guide and will not address every situation. If you have questions or need additional information, please contact taxpayer assistance at the Kansas Department of Revenue.
Taxpayer Assistance Center
PO Box 3506
Topeka, KS 66625-3506
By Appointment - Go to ksrevenue.gov to set up an appointment at the Topeka or Overland Park office by using the Appointment Scheduler.
Office hours are 8 a.m. to 4:45 p.m., Monday through Friday.
WEBSITE - ksrevenue.gov
Our website contains information about all aspects of the Kansas Department of Revenue. Forms and publications, exemption certificates, and information about all the taxes administered are published here. Each division of the Department of Revenue is represented. Additionally, our website also contains current information devoted to paperless file and pay options.
POLICY INFORMATION LIBRARY (PIL)
Another service available to taxpayers is an online library of policy information (PIL) for all taxes administered by the Kansas Department of Revenue. The PIL contains Kansas statutes and regulations, Revenue Notices, Revenue Rulings and other written advice issued by the Department of Revenue. Opinion Letters and Private Letter Rulings are also included.
At times there are unique situations that may require an interpretation or clarification based upon the law, regulations, and specific facts of the case. To assist you in understanding how the law applies to your business, the Department of Revenue issues three types of written advice: revenue notices, revenue rulings, and private letter rulings. This written advice is binding on the Department of Revenue and may be relied upon as long as the statute or regulation on which they are based is not altered by the Legislature, changed by a court decision, or the ruling itself modified or rescinded by the Department of Revenue.
You should not rely on a verbal opinion from the Department of Revenue regarding taxability not specifically addressed in the law. When an issue arises in your business that is not directly addressed in the law, document the problem in writing and request a Private Letter Ruling or an Opinion Letter from the Department of Revenue. Fax or mail your request for a written ruling to:
Tax Policy Group
Kansas Department of Revenue
PO Box 3506
Topeka, KS 66601-3506
You will receive a written ruling within 30 days after your request (and any additional information necessary for the ruling) is received. Private letter rulings are published in our Policy Information Library (PIL), but the letters have been “scrubbed” to protect the privacy of the taxpayer—any information identifying the taxpayer, such as name, address, product, etc., is blanked out.
KEY STATUTES AND REGULATIONS
In preparing this guide we cited the following laws and regulations. The full text of these are a part of the PIL on our website and are also available in libraries throughout the state.
- K.S.A. 8-126 – Vehicle definitions
- K.S.A. 12-187 et seq. – Local sales tax
- K.S.A. 12-199 - Local compensating use tax
- K.S.A. 79-3201 et seq. – Income tax
- K.S.A. 79-3401 et seq. – Motor fuel tax
- K.S.A. 79-3601 et seq. – Retailers’ sales tax
- K.S.A. 79-3606 et seq. – Sales tax exemptions
- K.S.A. 79-3701 et seq. – Compensating use tax
- K.A.R. 92-19-25b – Exemption certificates
- K.A.R. 92-19-30 – Motor Vehicles or Trailers*
- K.A.R. 92-19-30a – Motor vehicles or Trailers*
* These important regulations are on the next two pages of this publication.
FORMS AND CERTIFICATES
The following pages have many of the sales and use tax forms and exemption certificates used by Contractors and Contractor-Retailers. You may reproduce any form in this publication as needed or download the certificates from our website (ksrevenue.gov).
- Notice 95-09
- Notice 93-04
- ST-8B - DEALER/PURCHASER DECLARATION OF EXEMPTION FOR CERTAIN VEHICLES AND AIRCRAFT SOLD TO NONRESIDENTS FOR REMOVAL FROM KANSAS
- TR-12 - AFFIDAVIT TO A FACT
- TR-312 - BILL OF SALE
- ST-28L - AIRCRAFT EXEMPTION CERTIFICATE
- ST-28J - INTERSTATE COMMON CARRIER EXEMPTION CERTIFICATE
- ST-28A - RESALE EXEMPTION CERTIFICATE
- ST-28T - TIRE RETAILER EXEMPTION CERTIFICATE
- ST-28B - STATEMENT FOR SALES TAX EXEMPTION ON ELECTRICITY, GAS, OR WATER FURNISHED THROUGH ONE METER
- ST-28VL - VEHICLE LEASE OR RENTAL EXEMPTION CERTIFICATE
Below is a list of publications available on the Kansas Department of Revenue’s website. These publications contain instructions applicable to specific business industries and general information for all business owners.
- Publication KS-1216, Kansas Business Tax Application
- Publication KS-1510, Kansas Sales Tax and Compensating Use Tax
- Publication KS-1515, Kansas Tax Calendar of Due Dates
- Publication KS-1520, Kansas Exemption Certificates
- Publication KS-1525, Kansas Sales and Use Tax for Contractors, Subcontractors and Repairmen
- Publication KS-1526, Kansas Business Taxes for Motor Vehicle Transactions
- Publication KS-1527, Kansas Business Taxes for Political Subdivisions
- Publication KS-1530, Kansas Tire Excise Tax
- Publication KS-1540, Kansas Business Taxes for Hotels, Motels and Restaurants
- Publication KS-1550, Kansas Business Taxes for Agricultural Industries
- Publication KS-1560, Kansas Business Taxes for Schools and Educational Institutions
- Publication KS-1700, Kansas Sales & Use Tax Jurisdiction Code Booklet
- KW-100, Kansas Withholding Tax Guide
STATE SMALL BUSINESS WORKSHOPS
As part of our commitment to provide tax assistance to the business community, Tax Specialists within the Kansas Department of Revenue conduct small business workshops on Kansas taxes at various locations throughout Kansas. Whether you are a new business owner, an existing business owner, or an accountant, these workshops will give you the tools and understanding necessary to make Kansas taxes easier and less time consuming for you. Topics covered include filing and reporting requirements and methods, what is taxable, what is exempt and how to work with the department in collecting and remitting Kansas taxes.
For a schedule of our workshops, visit our website. Pre-registration is required and a fee may be charged by the sponsoring Small Business Development Center (SBDC).
Motor vehicles or trailers; isolated or occasional sale. (a)(1) An isolated or occasional sale of motor vehicle or trailer is a sale made between private individuals or other entities who, at the time of the sale, are not retailers registered to collect and remit sales or use tax on the sale of such a vehicle or trailer.
(2) Kansas motor vehicle dealers and trailer dealers are retailers and cannot make isolated or occasional sales of vehicles or trailers. These dealers shall collect sales tax at the time of the sale on each taxable retail sale of a motor vehicle or trailer.
(b)(1) Unless a sale is one that is excepted from the imposition of sales tax by K.S.A. 79-3603(o) or exempted from tax under K.S.A. 79-3606, and amendments thereto, sales tax shall be levied on the isolated or occasional sale of a motor vehicle or trailer. Tax on the isolated or occasional sale of a motor vehicle or trailer shall be paid to the county treasurer when the purchaser or other transferee applies for a certificate of title or a certificate of title and registration or to the director of taxation, as provided in paragraph (c)(3).
(2) When a person who has acquired a vehicle in an isolated or occasional sales transaction applies for a certificate of title or certificate of title and registration, the county treasurer shall collect the sales tax that is due along with a service fee of 50 cents, and give the applicant a receipt for the tax and fee paid. A certificate of title or certificate of title and registration shall not be issued until the transferee pays the tax and applicable fee or proves to the satisfaction of the county treasurer or the director of taxation that the transfer is not taxable.
(c)(1) County treasurers shall be assisted by the director of taxation or director of vehicles in determining whether or not a transaction is taxable or exempt. Refusal to issue a certificate of title or certificate of title and registration for a vehicle may be requested by the director of taxation or director of vehicles until sales tax is paid. Sales tax shall be collected by a county treasurer if any doubt exists as to an applicant’s exemption claim. An applicant who pays sales tax may file a refund claim with the director of taxation if the applicant believes the tax has been erroneously collected by county treasurer or department of revenue.
(2) Each determination made by a county treasurer to exempt an isolated or occasional sale may be reviewed by the director of taxation. Following this review, a sales tax assessment may be issued to the vehicle registrant for any sales tax that is unpaid or underpaid because of clerical error, misinformation, or other cause.
(3) Any sales tax that is finally determined to be due under an assessment shall be paid to the director of taxation. Payment of sales or use tax on isolated or occasional sales of motor vehicles or trailers may be made to the director of taxation instead of the county treasurer, as provided in paragraph (b)(1), to correct any other underpayment or as an accommodation to the taxpayer.
(d) As a general rule, the base for computing the tax shall be the actual selling price of the vehicle. However, the tax shall be computed on the fair market value of the vehicle by the county treasurer or the director of taxation under either of the following circumstances:
(1) The selling price of the vehicle is unknown; or
(2) the stated selling price is not indicative of, and bears no reason-able relationship to, the fair market value of the vehicle or the average retail value as shown in the latest publication of the national automobile dealers’ association official used car guide book.
(e) The actual selling price shall be the base for computing the tax on the sale of wrecked or damaged vehicles.
(f)(1) “Sale” or “sales” means the exchange of property, a sale for money, and every other transaction in which consideration is given, whether conditional or otherwise.
(2) “Vehicle” means motor vehicle or trailer.
(3) “Transferor” means the seller, donor, or other person who sells, gives away, or otherwise parts with the vehicle.
(4) “Transferee” means the purchaser, donee, or other person who purchases, is given, or otherwise acquires ownership of the vehicle.
(g) K.S.A. 79-3603(o), and amendments thereto, which imposes sales tax on isolated or occasional sale of trailers and motor vehicles, excepts the following transfers or sales from the tax imposition on these isolated or occasional sales:
(1) Transfers by an individual to a corporation solely in exchange for stock in the corporation;
(2) transfers from one corporation to another corporation when done as part of the transfer of all the corporate assets; and
(3) sales of automobiles, light trucks, trailers or motorcycles between immediate family members.
(h) “Immediate family member” is any person in a class that is defined by statute to mean lineal ascendants and descendants and their spouses. Since a person may have lineal ascendants and descendants and may also be the spouse of someone who has lineal ascendants and descendants, this class includes the grandfather, grandmother, father, mother, son, daughter, and adopted child of the person; the spouses of these ascendants and descendants; the grandfather, grandmother, father, mother, son, daughter, and adopted child of the person’s spouse; and any other ascendants and descendants that are further removed, including great-grandparents and great-grandchildren. The sale or transfer of an automobile, light truck, trailer or motorcycle between members of this class shall be exempt from sales tax.
(i) Certain transfers of motor vehicles or trailers are not sales, as defined in paragraph (f)(1), and shall not be taxed. These include name changes, transfers by gift, and certain transfers made by operation of law. The following rules shall apply to these transfers.
(1) A transfer shall be presumed to be a gift when the transferee is the spouse, mother, father, brother, sister, child, grandmother or grandfather, aunt, uncle, niece, or nephew of the transferor and money is not exchanged for the vehicle. A gift shall also be presumed when these relatives trade or exchange vehicles and money is not exchanged as part of the trade or exchange. However, if money is exchanged for the vehicle, the transfer shall be taxable, unless the sale is exempted as set forth in subsection (h).
(2) A vehicle transfer by gift is not a sale and shall not be taxed. To qualify as a gift, the vehicle shall be given without any consideration and with an intention on the part of the donor that the transfer is a gift. When the relationship of the parties is not one of the relationships set forth above in paragraph (i)(1), the transferee claiming the transfer is a gift shall submit proof of this claim to the satisfaction of the county treasurer or director of taxation.
(3) The change of an owner’s name on the title when there is no actual transfer of vehicle ownership to a different person or entity is not a sale and shall not be taxed. However, the transfer of a motor vehicle or trailer from a corporation to an individual shall be taxed since there is a change of ownership from one legal entity to another. The vehicle transfer shall be presumed to be the corporation’s payment of a wage, dividend, bonus, or other benefit to the officer, employee, shareholder, or other transferee.
(4) A transfer to an heir or legatee by will or pursuant to the inheritance or intestacy laws of a state is not a sale and shall not be taxed. A certified copy of the probate court order making the distribution shall be filed with the county treasurer.
(5) The sale to a person who takes title to a vehicle with the intention of transferring it to the winner of a drawing or raffle shall be taxed. The subsequent transfer of the vehicle to the winner of a drawing or raffle is a gift from the donor to the winner and shall not be taxed. When a donor pays a motor vehicle dealer for a vehicle and the vehicle is transferred from the dealer directly to the winner of a drawing or raffle, the gift is considered to be the payment made for the automobile rather than the automobile itself, and the winner shall be liable for the sales tax that is charged by the dealer on the vehicle sale. Whenever a vehicle is won as a prize and sales tax has not been paid by either the vehicle donor or vehicle winner to this state or another state, the winner shall pay Kansas sales or use tax when the vehicle is registered with the county treasurer.
(6) When the title to a vehicle is transferred to the holder of an encumbrance as a result of repossession under the terms of a written agreement entered into at the time of original purchase by the purchaser and encumbrance holder, the transfer is not a sale and shall not be taxed. However, any registration or subsequent sale of the vehicle by the encumbrance holder shall be taxed.
(7) When a lender grants a debtor permission to redeem a vehicle pursuant to K.S.A. 84-9-506, and amendments thereto, the redemption of the vehicle by the debtor is not a sale and shall not be taxed.
(8) When a lien holder acquires title to a vehicle through a court-ordered foreclosure of a mechanic’s lien, landlord’s lien, storage lien, or other statutory lien, the transfer of title to the lien holder shall be exempt if the lien holder does not register the vehicle. However, any registration or subsequent sale of the vehicle by the lien holder shall be taxed. The redemption of a vehicle from a lien holder by a debtor who satisfies the underlying debt is not a sale and shall not be taxed.
(j) The following transfers shall be considered sales, and shall be subject to sales tax.
(1) K.S.A. 79-3602(h)(2), and amendments thereto, allows a credit or discount for a vehicle that is traded for another vehicle. When vehicles of different value are traded by private individuals, the person who pays cash or tenders some other consideration in addition to the vehicle being traded or exchanged shall pay sales tax on the amount of the cash payment or on the fair market value of the consideration. In this trade, sales tax shall not be due from the person who traded or exchanged a vehicle but did not pay any additional cash or provide any additional consideration. Each person claiming a sales tax credit or discount for a vehicle that is traded shall file an affidavit with the county treasurer on a form furnished by the department of revenue that contains information necessary to support the credit or discount being claimed.
When the stated cash amount or stated value of the other consideration is not indicative of, and bears no reasonable relationship to, the difference between the fair market value of the vehicle traded and the fair market value of the vehicle received by the purchaser, the tax shall be computed by the county treasurer or the director of taxation on the difference between the fair market value of the vehicles or the difference between the average retail value of the vehicles as shown in the latest publication of the national automobile dealers’ association official used car guide book.
(2) The purchase of a vehicle that the purchaser intends to give to someone else shall be taxed, even though tax is not due on the subsequent transfer from the purchaser to the donee.
(3) A transfer of a vehicle from a partner to the partnership or from a partnership to a partner shall be presumed to be a taxable transfer. A transfer from the partner to the partnership shall be presumed to be made in consideration of an increased partnership interest. A transfer from the partner to the partnership shall be presumed to be made for services rendered to the partnership or for other value passing between the partner and the partnership.
(4) If a donor gives a donee a gift of cash or other property for the purpose of purchasing a vehicle, the donee shall be liable for the tax, if the vehicle is purchased.
(5) The transfer of a vehicle in exchange for the transferee’s assumption of an obligation to pay all or part of an encumbrance on the vehicle is a sale and shall be taxed, unless the sale is between immediate family members or is exempt under K.S.A. 79-3606, and amendments thereto. When the transfer does not involve a gift and is not otherwise exempt, the tax base shall be the sum of any payment made by the buyer to the seller plus the amount of the encumbrance being assumed. Sales tax shall be computed as set forth in subsection (d) of this regulation if this amount is not indicative of, or bears no reasonable relationship to the fair market value of the vehicle. When the transfer represents a gift of part of the value of the vehicle that has been established in accordance with paragraphs (i)(1) or (i)(2) of this regulation and is not otherwise exempt, the tax base shall be the sum of any payments made by the buyer to the seller plus the amount of the encumbrance being assumed, regardless of the fair market value of the vehicle.
(6) When a vehicle is purchased to replace a vehicle that has been stolen or destroyed by accident, fire, or other adversity, the purchase of the replacement vehicle is not exempt and shall be taxed. Each purchase of a replacement vehicle shall be taxed whether the replacement vehicle is purchased by the owner of the vehicle that was stolen or destroyed or by an insurance company that is obligated to provide a replacement vehicle.
(7) A transfer of a vehicle from a corporation to an officer, shareholder, board member, or employee shall be presumed to be a taxable transfer and shall be presumed to be made in consideration for services rendered to the corporation or for other value passing between the corporation and transferee.
(k)(1) Each transferee claiming an exemption shall complete an affidavit form furnished by the department of revenue and file it with the county treasurer when the vehicle is registered. The exemption affidavit shall be completed in its entirety and shall contain the names, addresses, and telephone numbers of the transferor and transferee; the make, year, model and body style of the motor vehicle or trailer; and any additional information that is needed to support the exemption claim. The affidavit shall contain facts in detail sufficient to clearly bring the transferee within the exemption being claimed.
(2) Each transferee claiming a family relationship as the basis for the exemption of a vehicle sale or as the basis for the presumption of a gift may be required to file an additional affidavit that establishes the relationship.
(3) Exemption affidavits that are not correct in both substance and form shall not be accepted by the county treasurer, and shall collect the tax shall be collected if any doubt exists as to the validity of the exemption claim.
(4) Any taxpayer may file a refund claim with the director of taxation if the taxpayer believes the tax has been erroneously collected by the county treasurer or the director.
(l)(1) When a motor vehicle or trailer is purchased out of state in an isolated or occasional sale, the purchaser shall pay Kansas state and local use tax to the county treasurer upon application for a certificate of title or certificate of title and registration. When a motor vehicle or trailer is purchased from an out-of-state dealer who is not registered to collect and remit Kansas state and local retailers’ use tax and has not collected sales tax on the sale for the state of purchase, the purchaser shall pay Kansas state and local use tax to the county treasurer upon application for a certificate of title or certificate of title and registration.
(2) When the purchaser has paid state and local sales tax to another state at a rate that is less than Kansas state and local use tax rates where the vehicle is registered, the purchaser shall pay Kansas state and local use tax to the county treasurer at a rate that is equal to the difference between the combined state and local tax rates for the Kansas location and the combined state and local tax rates that were used to determine the tax paid to the other state.
Motor vehicles or trailers. Sales tax shall be imposed on the total selling price of each motor vehicle or trailer to the ultimate user or consumer. The total selling price includes all tangible personal property mounted, installed, applied or otherwise attached or affixed to the motor vehicle or trailer. For sales tax purposes, tangible personal property is not separable from the motor vehicle or trailer to which it is mounted, installed, applied or otherwise attached or affixed. When calculating sales tax on the retail sale of a motor vehicle or trailer, the retailer shall not exclude or deduct for the tangible personal property, regardless of how any contract, invoice or other evidence of the transaction is stated or computed, and whether separately charged or segregated on the same contract or invoice. Any charge attributed to the tangible personal property mounted, installed, applied or otherwise attached or affixed to a motor vehicle or trailer cannot be separately billed or segregated on an invoice or contract in order to qualify for an isolated or occasional sale exemption.