Form Pub. Ks-1525 - Kansas Sales & Use Tax For Contractors Subcontracotrs & Repairmen Page 30
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492) Retailers’ Compensating Use Tax – collected by
retailers in other states from their Kansas
COMPENSATING
customers.
USE TAX
Consumers’ Compensating Use Tax
The Consumers’ Compensating Use Tax is due when
Kansas residents buy goods or merchandise for their
WHAT IS COMPENSATING USE TAX?
own use or consumption (final consumer) from vendors
in other states on which a state and local sales tax rate
equal to that of the Kansas buyer has not been paid.
Since 1937 Kansas has imposed a use tax on goods
HOW the transaction or sale is accomplished – phone,
purchased by Kansans (individuals and businesses)
fax, catalog, internet - is not a factor. When a taxable
from outside Kansas and used, stored, or consumed in
item is purchased in Kansas, the customer is required
Kansas on which no sales tax was paid, or a sales tax
to pay the state and local sales tax on it. When that
less than the Kansas rate was paid. The purpose of
taxable item is purchased outside Kansas for use,
compensating use tax is to protect Kansas businesses
storage or consumption in Kansas (not resale), state
from unfair competition from out-of-state retailers who
and local use tax is due.
sell goods tax-free; use tax compensates for the lack of
Use Tax and Your Business
sales tax collected at the time of purchase by the retailer.
A use tax also helps to assure fairness to Kansans who
Many Kansas contractors and repairmen are not
purchase similar items in Kansas and are required to
aware of their consumers’ use tax obligation until they
pay Kansas sales tax on them.
are audited – a costly oversight. As a business consumer,
you owe use tax as the final consumer of the equipment,
All the states that have a general sales tax also levy
fixtures, materials, tools and other taxable non-inventory
the companion use tax. Items purchased in or from
items purchased from vendors outside of Kansas.
Alaska, Delaware, Montana, New Hampshire and Oregon
are automatically subject to use tax since these five states
You have a contract to build a new home
do not have either a general sales or a use tax. (Montana
in Pittsburg, Kansas. The following four
applies sales tax only to a few selected transactions.)
situations illustrate the Sales and Use Tax
treatment of materials purchased from
Use tax is due on out-of-state purchases whether the
outside Kansas.
property is shipped into Kansas or picked up in another
Situation 1. Deck materials are ordered from a lumber yard
state and brought back to Kansas. It applies only to
in Joplin, Missouri and delivered by a third party interstate
tangible personal property - labor services are not
carrier to the job site in Pittsburg. These materials are taxable.
subject to use tax. Like sales tax, compensating use tax
Since the Missouri retailer did not charge you the Kansas
is based on the total cost of the good purchased,
Retailers’ Compensating Use Tax for Pittsburg on the sale,
including postage, shipping, handling or transportation
you owe the Kansas Consumers’ Compensating Use Tax
charges from the retailer to the Kansas consumer.
on the materials at the rate in effect for your Pittsburg job site.
Situation 2. Not all of the deck supplies ordered from the
Like sales tax there is a local (city and/or county)
retailer in Situation 1 were shipped, and you go to Missouri to
compensating use tax on tangible personal property that
pick up the rest of the order. Since the sale is taking place in
is shipped from outside of Kansas for use, storage or
Missouri, a Missouri sales tax (if applicable) is due. Kansas
consumption in Kansas. Like instate sales tax
Consumers’ Compensating Use Tax may also be due if the
transactions, the local use tax rate imposed is generally
state and local rate paid in Missouri is less than the rate in
the rate where the customer takes delivery or possession
effect at the Pittsburg job site.
of the goods (i.e., the ship-to address). Thus, whether
Situation 3. The kitchen cabinets are being made in Arkansas,
the item was purchased in or outside of Kansas for use
and the Arkansas retailer is delivering them to your job site in
in Kansas - the rate of tax due is the same rate.
his own truck. This Arkansas retailer has established “nexus”
in Kansas by making deliveries into Kansas with his own
truck, and therefore must be registered to collect the Kansas
The net effect is that the same rate of tax is applied
Retailers’ Compensating Use Tax on this sale to you.
to a taxable item purchased by a Kansas consumer,
whether it is purchased locally (within Kansas), or
Situation 4. The faucets you need come from a company in
shipped to the Kansas consumer by a seller in another
Texas that also has an outlet store in Overland Park, Kansas.
The Texas company will therefore charge you the Kansas
state (or country). Although enacted in 1937,
Retailers’ Compensating Use Tax on this sale at the rate in
compensating use tax is probably the tax most often
effect when you take delivery of the faucets (ship to address).
unpaid by Kansas businesses and individuals. There
are two types of compensating use tax:
For more discussion of use tax, obtain Pub. KS-1510,
1) Consumers’ Compensating Use Tax – paid by
Kansas Sales and Compensating Use Tax, from our
the Kansas consumer direct to KDOR.
web site.
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