Kansas Sales Tax & Audit Guide
Straightforward Answers to Your Kansas Sales Tax Questions.
- Do I need to collect Kansas sales tax?
- Should I be collecting or paying Kansas use tax?
- What do I do if I should have been collecting but haven't?
- I received an audit notice. What should I do?
- Guidance on fighting a sales tax assessment in Kansas.
Who Needs to Collect Kansas Sales and Use Tax?
Like most states, to be subject to Kansas sales tax collection and its rules, your business must:
1) Have nexus with Kansas, and
2) Sell or use something subject to Kansas sales tax.
How is Nexus Established in Kansas?
- any retailer who maintains, permanently, temporarily, directly or indirectly through a subsidiary, agent or representative, an office, distribution house, sales house, warehouse, or other places of business
- any retailer who utilizes an employee, independent contractor, or other person operating in this state, either permanently or temporarily, for selling, delivering, installing, assembling, servicing, repairing, soliciting sales, or the taking of orders for tangible personal property
- any retailer, including contractors, repair persons, or other service providers, who enters this state to perform enumerated services and who is required to secure a retailer's sales tax registration certificate before performing those services
- any retailer who derives rental receipts from a lease of tangible personal property situated in this state
- any person who maintains a stock of tangible personal property in this state for sale in the ordinary course of business; and
- any retailer who has any other contact with this state that would allow this state to require the retailer to collect and remit tax under the provisions of the constitution and laws of the United States
Additionally, businesses that do not have a physical presence in Kansas can establish economic nexus by exceeding a certain annual sales threshold in Kansas. See the next section for details.
Economic Nexus (Wayfair Law) and Internet Sales in Kansas Out-of-state sellers have established economic nexus and is required to register with the Department of Revenue to secure a Kansas Sales and Use Tax Permit, if:
- For the period beginning on January 1, 2021, through June 30, 2021, the retailer had more than $100,000 of cumulative gross receipts from sales by the retailer to customers in Kansas OR
- During the current or previous calendar year, the retailer had more than $100,000 of cumulative gross receipts from sales by the retailer to customers in Kansas.
Retailers who satisfy the nexus provisions are not required to collect and remit any taxes from sales before July 1, 2021.
How is the $100,000 gross revenue threshold calculated?
All calculations start from July 1, 2021, and apply to all “remote sellers”.
An out-of-state retailer is a “remote seller” if they have cumulative gross receipts from sales to customers in Kansas in excess of $100,000 during the current or preceding calendar year. In this context, cumulative gross receipts include all sales made by the “remote seller” to customers in Kansas, regardless of whether the item being sold is subject to or exempt from tax.
Sales made prior to calendar year 2021 are not considered determining the amount of cumulative gross receipts for registration purposes since the rule was not in effect prior to July 1, 2021.
Which Sales are Subject to Kansas Sales Tax?
Unless an item is specifically exempt, sales and rentals of tangible personal property are subject to Kansas sales tax.
Kansas sales tax generally applies to the following types of transactions:
1) The sale, rental, or lease of tangible personal property, including the furnishing of utilities within the state
2) Labor charges for installation, application, repair, service, alteration, or maintenance of tangible personal property; and
3) Admissions tickets to places providing amusement, entertainment, or recreation services, including admission fees to state, county, district, and local fairs.
With any of these activities, you must collect sales tax from your customers.
The rules seem simple, but many details make applying Kansas’s tax rules to your business challenging.
We recommend scheduling a time to review your specific situation with one of our sales tax professionals.
Common Exemptions from Kansas Sales and Use Tax:
Exempt items include:
- Aircraft sales, parts, and repair services for carriers in interstate or foreign commerce, as well as sales of aircraft repair, modification, and replacement parts and sales of services employed in the remanufacture, modification, and repair of aircraft
- Broadcasting equipment purchased by over-the-air free access radio and television stations
- Drill bits and explosives used in the exploration of oil and gas
- Drugs and pharmaceuticals sold to veterinarians
- Farm machinery and equipment
- Food sold to groups providing meals to the elderly and homebound, and food sold by a nonprofit 501(c)(3) organization under a food distribution program that sells the food below cost in exchange for community service and all sales of food products by or on behalf of any such contractor or organization for any such purpose.
- Integrated production machinery and equipment
- Materials purchased by a community action group to repair or weatherize low-income housing
- Medical supplies and durable medical equipment purchased by a nonprofit skilled nursing home, including oxygen delivery and kidney dialysis equipment, and enteral feeding systems
- Public health educational materials purchased by a nonprofit corporation for distribution to the public
- Railroad parts, materials, and services for railroad rolling stock used in interstate or foreign commerce
- Rolling stock (trucks, buses, tractor-trailers, etc.), repair or replacement parts, and motor fuels purchased by ICC carriers
- Warehouse machinery
- Food stamp purchases Child Nutrition Act (WIC program) purchases
- Lottery tickets
- Prescription drugs and medical appliances
- Prosthetic Devices and Mobility Enhancing Equipment
Kansas sales tax applies to the installation, application, alteration, repair, servicing, or maintenance of tangible personal property and includes:
- Appliance repair or service
- Car repair or service
- Dry cleaning, pressing, dyeing & laundry services
- Maintenance agreements
- Pet grooming
- Tool sharpening
- Washing, waxing, or detailing vehicles
- Installing plumbing, wiring, cabinets, light bulbs, and other fixtures in an office building
- Planting trees, shrubs, or grass
- Installing tires or parts on a vehicle
- Applying fertilizer/weed killer
- Waxing floors
- Resurfacing parking lots
- Furniture refinishing
- Upholstery work
- Modifying or updating computer software
- Sewing and alteration services
- Changing or altering furniture, software, or clothing
The following services are NOT TAXABLE because they do not involve the installation, application, service, maintenance, or repair of tangible personal property:
- Legal services
- Architectural consulting
- Snow removal
- Excavating towing/moving
- Hair styling
- Trash hauling
See page 5 of the Kansas Sales Tax Guide for more information on the taxable status of specific services in Kansas.
Sales of custom software are not taxable. When a contract requires entirely new software to be designed, written, and sold to a specific customer for the customer's exclusive use, the sale is not subject to tax.
When a contract requires entirely new software to be designed, written, and sold to a specific customer for the customer's exclusive use, the sale is not subject to tax.
Database Access Providers
Information Services or Database Access Services are nontaxable services that consist of a collection of records or data that is stored in a remote computer system and contains software that allows the purchaser of the service to electronically answer queries or extract information.
Kansas does not tax a database provider's charges that allow a customer to electronically access information on the provider's remote database, whether by the Internet, telephone, or some other electronic means.
These electronic services can provide:
- The furnishing of general or specialized current information, such as tax or legal information
- data retrieval or research, such as newsletters, real estate listings, credit, stock market, or bond rating reports
- mailing lists
- abstracts of title
- news clipping services
- scouting reports
- bad check lists
- broadcast rating services; and
- music, videos, pictures, and greeting cards that are delivered electronically
Separately stated charges by a provider for transmitting electronic information that the customer can print or retain are not taxable. These rules apply even though much of the same information and products are taxable when delivered on a tangible medium.
Sales of prewritten software are taxable so, continuing with the database example, if the charges are for the use of prewritten software that customers use to retrieve information from a database, these charges are taxable even when the software can only be used to access an exempt database.
Shipping & Handling
Charges by a seller for shipping or delivery connected with the sale of taxable goods or services are subject to tax regardless of whether the charges are separately stated in a written contract or the shipping or delivery is provided by the seller or a third party. Tax is due on the entire sale including any shipping charges.
In some instances, one charge for shipping or delivery applies to taxable and non-taxable goods.
To calculate the portion of the charge subject to tax, the purchaser may prorate the amount using the same measure (for example, weight or sales price) used to determine the shipping charge.
A delivery fee of $100 is charged for the shipment of 150 lbs. of taxable and non-taxable goods ($.67 per lb.). The taxable goods weigh 80 lbs. The portion of the delivery charge attributed to the delivery of the taxable goods is $53.60 (80 lbs. x $.67 per lb.). Therefore, only $53.60 of the $100 delivery fee is included in the sales price subject to tax.
While the general sales tax rules seem straightforward, applying those rules can get tricky when gray areas come up. The Kansas Department of Revenue provides specific tax guidance for these industries:
- Business Taxes for Hotels, Motels and Restaurants
- Business Taxes for Motor Vehicle Transactions
- Business Taxes for Agricultural Industries
- Kansas Business Taxes for Contractors, Subcontractors, and Repairmen
- Business Taxes for Schools and Educational Institutions
- Application of Kansas Sales Tax to the Sales of Propane
- Lawn & Garden Care, Pest Control, Fertilizer Application, Landscaping & Retail Sales
- Telecommunication Services
Determining Local Sales Tax Rates in Kansas
Kansas sales tax rate is 6.5%. Six hundred seventy-seven counties, cities, and special purpose jurisdictions can charge an additional local sales tax of up to 3.5%, for a maximum combined sales tax of 10%.
Local Sales and Use Tax Tables
You can look up local tax rates for all counties and special jurisdictions here. We’ve included some of them in the chart below.
*Exact tax rates vary. Occupancy fees and taxes are not included in this table.
I Should Have Collected Kansas Sales Tax, But I Didn't
Many of our competitors will suggest Filing a Voluntary Disclosure Agreement in each state. This is a one-size-fits-all solution that isn't always the best. Our sales tax professionals will work with you to determine the best and most cost-effective solution for your business.
If you determine your business has nexus, but you have not collected Kansas sales tax, here are your options:
1. Register and pay back taxes, penalties, and interest, or
2. Complete a VDA to cut penalties (and, in some cases, reduce your tax liability and avoid interest).
Here is what you need to know about each option to make the best decision for your business:
Option 1: Register to Pay Back Taxes, Penalties, and Interest.
A VDA is not cost-effective if the past liabilities and penalties are minimal. Sometimes the best resolution for a business is to register with Kansas and pay back taxes, penalties, and interest.
Be wary of the tax professionals that recommend doing a VDA in these cases. They are looking to make a buck rather than looking out for your best interests.
When to consider registration and payment:
- If you established nexus less than 3 or 4 years ago.
- The sales tax penalty is LESS than the professional fees charged for the VDA.
- Your business does NOT have a sales tax collected issue.
Beware: Registering does not generally end past liabilities.
If you're unsure what your past liabilities are, contact us. Our state tax professionals work with you so you can make the right choice for your business.
Option 2: Voluntary Disclosure Agreement (VDA)
Kansas's lookback period: The standard lookback period is three years.
In many situations, voluntary disclosures are a valuable tool to reduce extended periods of past exposure.
The voluntary disclosure limits the lookback period to three years. Suppose you should have collected sales tax over the past ten years but didn't. If that is the case, you may benefit from doing a VDA.
A VDA may be a good option for you if:
- You established nexus more than 3 or 4 years ago.
- You have a sales tax collected but not remitted issue.
- The sales tax penalty savings is MORE than the professional fees charged for the VDA.
What to Expect During an Audit
The typical audit process is shown in this flowchart. Detailed guidance for each stage of the process follows in the sections below.
Kansas regularly audits businesses required to charge, collect, and remit various taxes in the state.
Many audits begin with a call from a Kansas Department of Revenue's sales tax auditor.
Shortly after the call, your business will receive an appointment letter. This notification confirms that you were lucky enough to be chosen for a Kansas sales tax audit and will list the information that is required for examination.
It is good to start with getting a state and local tax professional involved to prepare for the audit.
I Received a Kansas Sales Tax Audit Notice. What Should I Do?
Businesses that receive a sales tax audit notice need to consider the following questions:
- Without sales tax audit experience, how can you trust that the state's auditor abides by the rules and follows proper procedures?
- How will you know when to provide documents or when to push back?
- Do you have a thorough understanding of your sales and use tax areas of exposure?
- Controlling the audit is paramount to limiting exposure and shaping the results. Are you confident in doing that on your own?
Unless you can confidently answer these questions, hiring a professional is most likely to be the best option.
Contact us to learn how our sales tax professionals can give you the peace of mind and confidence you’ll need during your audit.
Visit our resource pages for more information to help you make critical decisions during your Kansas sales and use tax audit.
What to Expect from a Kansas Sales Tax Auditor
If you want to know what to expect from an auditor, the Kansas Department of Revenue provides a description of the process, which you can access here.
If you have questions about your situation, contact us to discuss it with one of our tax professionals.
For now, here is the summary of the general audit process:
- The auditor will conduct pre-audit research.
- The auditor will often schedule and perform an entrance conference.
- The auditor will request records (many of which the auditor is not entitled to and does not need)
Once the auditor receives the necessary records, they will compare your Kansas sales and use tax returns to your federal income tax returns or bank statements to determine whether you reported all applicable or gross sales on your Kansas sales tax return(s).
NOTE: A slight error in how the tax was charged on even a single type of transaction can add up to a significant sales tax liability.
Once the auditor is confident all sales are accounted for, they will:
- Review your exempt and out-of-state sales.
- Conduct a use tax audit – the auditor will request documents of accounts to make sure the retailer paid use tax adequately on applicable purchases.
Common areas audited include:
- Advertising Expense
- Auto & Truck Expense
- Repair and Maintenance
- Office Expense
- Miscellaneous Expense
|When a business buys an item online without paying sales tax, the business may still be obligated to remit use tax to Kansas. Believing otherwise often leads to shocking results for the unsuspecting taxpayer during an audit. Here is more information on Kansas Use Tax.|
Audit Closing Conference
The taxpayer has a short period to contest the findings with the auditor. Any issues with the results are handled as follows:
1. Issues related to exemptions, proof of tax paid, and calculations are worth addressing with the auditor.
2. Legal interpretations of sales tax law are often not resolvable at this stage.
Adjustments to the audit assessment will be made where necessary after this conference, and the notice of assessment will be issued.
After the Audit – Understand and Defend Your Businesses Rights
Upon completion of the audit, there will usually be an exit conference with the auditor. The auditor will produce an audit report with corresponding work papers to support the Kansas sales and use tax assessment.
It is advisable to have a sales tax professional present during this meeting. This is your first opportunity to see the auditor's findings. You'll want to push back on areas where they have overstepped their bounds or misapplied Kansas's sales tax laws.
It's best to hold off on agreeing to the sales tax assessment until a sales tax professional has reviewed it for issues that should be challenged.
|Many businesses wind up drastically overpaying the state because the business owner or in-house accounting personnel weren't well versed in the sales tax laws that, if challenged, could have reduced their sales tax liability.|
We'll cover the process of challenging a Kansas sales tax audit assessment in detail in the following sections.
Contesting Audit Findings with the Auditor
Kansas Sales Tax Audit Protest Process Flow Chart
NOTE: If the deadlines are missed, it can be tough to get the case reopened.
After an audit, the auditor will issue a Final Audit Report/Notice of Assessment.
The audit report:
- Details the auditor's findings
- Describes any proposed audit adjustments
- Shows the amount of tax, interest, and penalty due
It's essential to review and understand its implications carefully. If you are unable to resolve it with the auditor, the next step is to formally protest with the Kansas Department of Revenue.
Appeal/Protest with The Kansas Department of Revenue
Protest Rights and Audit Finding Confirmation
- If you disagree with an audit's findings, you have 60 days to file an appeal.
- The appeal must state why the assessment, the tax, interest, or penalties are incorrect.
- You must complete a protest/appeal within 60 days, (sixty) days from the date of the first formal billing notice.
If your petition for a hearing is timely and properly filed, your appeal will first be given to a Problems Resolution Officer with the Audit Services Bureau to attempt to resolve the dispute informally without a hearing.
If you have received a Notice of Assessment and haven't talked to someone experienced in Kansas State tax, now is the time. Do it before these deadlines are missed.
The Audit Services Bureau will issue a Final Determination.
If the assessment is not settled to your satisfaction by the Audit Services Bureau an informal conference will be scheduled with an Appeals Hearing Officer. Decisions by the Appeals Hearing Officer are subject to review by the Kansas Board of Tax Appeals.
Settling a Kansas Sales Tax Liability
After any critical notices are issued, you can settle your Kansas sales tax case with the Kansas Department of Revenue by filing a Kansas Offer in Compromise.
To qualify, the business must meet specific criteria, but often, you can get better results negotiating here than with the auditor. Without experience and knowledge of Kansas tax laws, knowing a fair settlement from an unreasonable one will be challenging.
DO NOT attempt to negotiate a settlement without an experienced Kansas state and local tax lawyer or other professional.
Contest a Kansas Jeopardy Assessment
Kansas may issue a Notice of Jeopardy Determination in certain situations.
The jeopardy assessment gives the Kansas Department of Revenue the right to try to collect immediately.
Due to the jeopardy nature, the taxpayer only has 15 days to contest the assessment and must place a security deposit to fight the issue.
Kansas Board of Tax Appeals
Suppose you can't resolve the case within the agency. Or maybe you have missed your deadlines. There's still one chance to fight your Kansas sales tax assessment: The Kansas Board of Tax Appeals.
The Kansas Board of Tax Appeals is an Administrative Board that serves as an administrative tribunal for resolving state tax disputes, such as sales tax disputes with the Kansas Department of Revenue. While the Board is not technically court, proceedings before it operate similar to court and if you have not had a seasoned sales tax professional handling your case, now is the time. Not understanding how to present evidence and facts to get a favorable ruling for your case can sabotage your case and you should have a sales tax lawyer or other professional on your team is critical.
We don't generally recommend it, but you always have the option to skip the agency protest process and file it in tax court. Neither party wants to spend the time and resources on the uncertainty of the tax court. So, challenging the assessment can effectively maximize your settlement potential, provided you have an experienced representative.
Our team has handled hundreds of administrative court cases. It can help your company receive the resolution you are entitled to. Get in touch with us today.
Other Kansas Sales Tax Resources
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