Form Pub. Ks-1525 - Kansas Sales & Use Tax For Contractors Subcontracotrs & Repairmen Page 14
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49Had the school purchased the materials directly from
IMPORTANT: Contractors and contractor-
a supplier, they would be exempt from sales tax as a
retailers may only buy or furnish materials
direct purchase, provided that the school furnished its
exempt from sales tax with a PEC.
supplier with its department issued exemption certificate.
Taxable Projects for Exempt Customers
Labor Services
When the state of Kansas or a nonprofit hospital is
The direct purchase of your taxable labor services
engaged in a taxable business such as operating a
by an exempt entity is exempt from sales tax. The
public cafeteria or gift shop, or when a Kansas political
exempt customer will provide you with its exemption
subdivision furnishes gas or electricity utilities,
certificate to substantiate their exemption for your sales
purchases of materials and/or labor services for these
tax books and records.
businesses are TAXABLE. Their sales tax exemption
does not apply when the purchase will be used in these
A city contracts with you to replace burned-
taxable businesses.
out bulbs in street and traffic lights using
the city’s light bulb inventory. Your labor
You enter into a contract to remodel part
services are normally taxable, but this
of a nonprofit hospital’s public cafeteria
contract is being performed for an exempt customer.
(a taxable business). You will pay sales
The city will provide you with its KDOR-issued Tax Exempt
tax on the materials and charge the
Entity Exemption Certificate for your records to show
nonprofit hospital sales tax on your labor services. The
why you did not collect sales tax on this contract.
nonprofit hospital cannot use its department issued
exemption certificate to purchase any part of the job
However, if you are a subcontractor, your taxable
exempt from sales tax.
labor services are not exempt as a direct purchase by
a sales tax exempt entity. You are being paid by the
You are installing lights in a city’s electric
general contractor, not the tax exempt customer. Your
utility plant. Although work for a city is
taxable labor services are therefore subject to sales
generally exempt, the city’s electric utility
tax. As a subcontractor you will charge sales tax on all
is a taxable business. You must charge
taxable labor service contracts billed to a general
the city (and the city must pay) sales tax on your taxable
contractor, unless the general contractor provides you
labor services to install the lighting.
with a Project Exemption Certificate (PEC).
When bidding projects for the state of Kansas, a
Materials
Kansas political subdivision (such as a city or county)
or a nonprofit hospital, inquire fully as to the nature of
The direct purchase of materials by a Tax Exempt
the project. If the project is for governmental or hospital
Entity is exempt from sales tax. A contractor-retailer
purposes, your labor services will be exempt. If the project
who purchased his inventory exempt from sales tax may
directly sell materials to such entity without sale tax.
is for a taxable business owned and/or operated by the
The exempt customer should provide the Contractor-
state of Kansas or a nonprofit hospital, your labor
Retailer with its KDOR-issued Tax Exempt Entity
services will be taxable.
Exemption Certificate.
Labor services performed for a political subdivision’s
A high school drama department buys
electric or gas utility department are always taxable. A
lumber and other materials to build sets
PEC may not be issued for a utility department project.
for the upcoming school play. A lumber
Special exemption certificates are used for a public water
yard will sell the lumber and materials to
supplier paying the Clean Drinking Water Fee.
the school exempt from tax. The school will provide the
lumber yard with its Tax Exempt Entity Exemption
Certificate. However, when the drama teacher later buys
PROJECT EXEMPTION CERTIFICATES (PECs)
nails and other supplies for the sets with his personal
funds, this sale is TAXABLE, since it is not a direct
A PEC is a numbered document issued only by
purchase by the school.
KDOR (Form PR-71 or PR-74) or by certain exempt
entities (Form PR-74a) as its authorized agent. As the
Materials purchased by contractors, subcontractors,
name implies, a PEC exempts from sales tax the
and repairmen to be used on projects for these sales
purchase of materials which will become part of the
tax exempt entities are NOT direct purchases by the
project and the labor to construct the project. PECs are
sales tax exempt entity. Contractors and contractors-
issued only to certain exempt entities OR for certain
retailers are deemed to be the final user or consumer
for-profit entities that qualify under the economic
of their materials, and must pay the sales tax on them.
development laws.
This rule applies even on a construction project for an
exempt customer.
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