Form Pub. Ks-1526 - Kansas Business Taxes For Motor Vehicle Transactions Page 8
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44Periodic Payments
inventory may be purchased exempt from sales tax by
the lessor (dealer or rental agency) with a Resale
Exemption Certificate.
Leases or rentals that involve periodic payments are
subject to the rate of sales tax in effect at the primary
Before placing a newly-acquired vehicle
property location. If during the term of the lease the
into service, Rent-A-Bomb, a used car
lessee moves to another jurisdiction and registers the
vehicle there, the state and local sales tax charged on
rental company, has a local mechanic
service the engine and perform some
the lease payments due after the move will be the rate
repair work. All of the parts and labor services are exempt
in effect at the new primary property location
from sales tax when Rent-A-Bomb provides the
(registration address). Down payments and cap cost
mechanic with a properly completed Resale Exemption
reductions made at the dealership are considered to
Certificate. See also Exempt Purchases herein.
be part of the lease. Thus, these payments are sourced
to the primary location of the vehicle.
A Pleasanton, KS dealership leases a
COMPENSATING
pickup to an Overland Park resident for
USE TAX
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 Overland Park
WHAT IS COMPENSATING USE TAX?
registration address. However, after 18 months the
lessee moves to Topeka and registers the pickup there.
Compensating Use Tax is a tax paid on goods and
The rate of tax charged by the Pleasanton dealership
merchandise (including vehicles) purchased in other
on each lease payment will now be the sales tax rate in
states and used, consumed or stored in Kansas upon
effect at the new primary property location – Topeka.
which no sales tax was paid or, another state’s (and
local) sales tax was paid at the time of purchase, but
No Periodic Payments
the rate was less than the Kansas rate. In general,
compensating use tax is due when an item is shipped
The rate of sales tax due on leases and rentals of
from one state into another whereas, sales tax is due
motor vehicles, trailers, semi-trailers or aircraft that do
when the sale wholly takes place with the geographical
not involve a periodic payment is subject to the rate of
boundaries of Kansas.
sales tax in effect at where the customer takes delivery.
The Kansas Compensating Use Tax rate is equal to
Rent-A-Bomb, a Topeka used car rental
the Kansas sales tax rate. In the case of vehicles, the
company, rents a car for $100 a week.
rate of compensating use tax due on a vehicle
When the customer takes delivery of the
purchased outside Kansas is equal to the Kansas
car at Rent-A-Bomb’s place of business -
retailers’ sales tax rate in effect at the registration
the rate of sales tax would be the rate in effect in Topeka.
address of the vehicle.
A Kansas City, KS resident buys a car in
RENTAL FLEET
Missouri and registers it in Wyandotte
County. Legally, the tax that is due is
Dealers and rental car companies may purchase the
Kansas Compensating Use Tax and not
vehicles that they intend to lease or rent (rental
Kansas Retailers’ Sales Tax. The rate of Kansas
inventory) free of sales tax because they will collect sales
Compensating Use Tax is equal to the rate of sales tax
tax based on the gross receipts received from each
in effect at the vehicle registration address – in this
lease or rental of the vehicle. Dealers should use a
case the Kansas City, KS sales tax rate.
Kansas Resale Exemption Certificate to make a
tax-exempt purchase of the vehicles that they intend to
Generally, the tax base for Kansas Compensating
sell, rent or lease.
Use Tax on vehicles and vessels (boats) is the same
tax base as for the Kansas Retailers’ Sales Tax. However,
XYZ Autos, a new car dealer, purchases
compensating use tax is imposed on the use, storage
several new Fords that it intends to enter
or consumption of an article of tangible personal
into long term leases with one of its
property within the state of Kansas, and not on the sale
commercial customers. The purchase of
of tangible personal property as required by sales tax.
these cars is tax exempt with a Resale Exemption
Certificate. XYZ Autos will collect sales tax on each of
The import of this distinction is that compensating
the lease payments.
use tax is not due on labor services that are subject to
Kansas sales tax. As a general rule, labor to service,
Furthermore, all parts and labor services to repair,
repair, alter or maintain a motor vehicle is taxable - but
service or maintain a vehicle in a lease or rental
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