Form Pub. Ks-1540 - Kansas Business Taxes For Hotels Motels & Restaurants Page 16
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42When buying an item from outside Kansas, a Kansas
OTHER TAXES
hotel or restaurant owes Kansas Use Tax to KDOR on
the total cost of the purchase (including shipping and
FOR HOTELS AND
handling charges) if the seller does not collect a sales
RESTAURANTS
tax equal to the Kansas state and local rate in effect
where the Kansas hotel or restaurant takes delivery. If
the state and local sales tax paid on the out-of-state
purchase is less than the Kansas state and local rate in
KANSAS COMPENSATING USE TAXES
effect where the Kansas resident takes delivery, the
difference between the two rates is owed to Kansas.
Compensating use tax is a tax paid on goods and
merchandise purchased from other states and used,
A Kinsley, Kansas restaurant buying china
stored, or consumed in Kansas on which no sales tax
from a Kansas retailer must pay Kansas
was paid. It is also due if the state and local sales tax
Retailers’ Sales Tax on this purchase of
paid at the time of purchase is less than the Kansas
restaurant equipment. Therefore, when
rate. The compensating use tax compensates for the
the Kinsley restaurant orders the china from a vendor
lack of sales tax paid at the time of purchase. Items
in Pennsylvania to be shipped via UPS to Kinsley, the
purchased in or from Alaska, Delaware, Montana, New
purchase is subject to a Kansas use tax. A compensating
Hampshire, and Oregon are automatically subject to
use tax of 8.3% (equal to the Kinsley sales tax rate) is
Kansas use tax since these five states do not have either
due on the total amount paid for the china (including
a sales or a use tax.
any shipping, handling or freight charges). If the
Pennsylvania retailer does not collect Kansas retailers’
Compensating use tax is due on out-of-state
use tax of 8.3%, then it is the restaurant’s responsibility
purchases whether the property is shipped into Kansas
to report and pay Kansas consumers’ use tax of 8.3%
or picked up in another state and brought back to
on its purchase.
Kansas. It applies only to tangible personal property —
labor services are not subject to compensating use tax.
Sleep Easy Hotel in Wichita, KS purchases
Like sales tax, compensating use tax is based on the
ten mattresses for $2,600 (including
total cost of the goods purchased, including postage,
shipping) from a retailer in Oklahoma City,
shipping, handling, or transportation charges.
OK and ships them to Wichita. Kansas
use tax of 7.3% is due on the total amount paid for the
The purpose of compensating use tax is to protect
mattresses ($2,600 X .073 = $189.80). Since the
Kansas businesses from unfair competition from out-
Oklahoma retailer did not collect Kansas retailers’ use
of-state retailers who sell goods tax-free. It also helps
tax, then it is the hotel’s responsibility to report and pay
to assure fairness to Kansans who purchase similar
Kansas consumers’ use tax.
items in Kansas and must pay Kansas sales tax on them.
The Sleep Easy Hotel also purchased 10
There are two types of compensating use tax:
desks from a retailer in Denver, Colorado.
Consumers’ Use Tax — paid by Kansas consumers
The total purchase price was $2,750. To
direct to KDOR. Retailers’ Use Tax — collected by
save shipping and handling charges, the
retailers in other states who are registered with KDOR
hotel picked the desks up in Denver and paid a Colorado
to collect from their Kansas customers. (See page 17.)
sales tax of 5% (3% state and 2% local). The Kansas
Use Tax is due on the difference between 7.3%
Since July 1, 2003 the Kansas Compensating Use
(Wichita’s rate) and 5% (Colorado state and local rate)
Tax rate paid by a consumer or collected by an out-of-
= 2.3%. The Kansas Consumers’ Use Tax due is $35.75
state retailer is equal to the Kansas sales tax rate in
($2,750 X .023 = $63.25).
effect where the item is used, stored or consumed in
Kansas (generally the ship-to address).
How to report the use tax due on these two purchases
by Sleep Easy Hotel described above is illustrated in
Consumers’ Compensating Use Tax
the steps for completing a CT-10U on page 24.
When a Kansas hotel or restaurant buys goods from
Kansas use tax applies when the item is used in
a retailer in another state for use, storage, or
Kansas, regardless of the location of the buyer or the
consumption (and not for resale) in Kansas, on which
billing address.
sales tax equal to the Kansas state and local rate in
effect where the Kansas hotel or restaurant takes
ABC Hotel Corporation’s home office is in
delivery has not been paid, a Kansas use tax is due.
Sacramento, California, and operates
Many Kansas hotels and restaurants are not aware of
hotels nationwide, including one in
any consumers’ use tax obligation until they are audited
Greenleaf, Kansas. The hotel chain’s
by KDOR — a costly oversight. Hotels and restaurants
supplier for guest room furniture is in North Carolina.
owe compensating use tax on the same items that they
Orders are transacted between the hotel’s California
are required to pay sales tax on (equipment, fixtures
headquarters and its furniture supplier in North Carolina
and supplies) had they purchased the items in Kansas.
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