by Ashleigh M. Paige
The Kansas Department of Revenue has issued a notice regarding L. 2022, H2136, effective from and after publication in the statute book (reported in State Tax Update, 06/03/2022), which changed the definition of “sales or selling price” under Kan. Stat. Ann. § 79-3602(ll). (Kansas Revenue Department Public Notice No. 23-02, 06/22/2023.)
Taxation prior to changes.
Prior to the amendment by the bill, delivery charges were included in the sales or selling price charged to a customer as part of the gross receipts from the sale of tangible personal property or enumerated services, and therefore, they were subject to Kansas sales tax. However, on and after July 1, 2023, delivery charges that are separately stated on the invoice, bill of sale, or similar document provided to a purchaser are not included in the sales or selling priced charged to a customer and are not part of the gross receipts from the sale of tangible personal property or enumerated services, and thus not subject to Kansas sales tax.
Qualification for exclusion.
To qualify for the exclusion from the sales tax base, delivery charges that are separately stated in the invoice, bill of sale, or similar document provided to a purchaser must be clearly denominated as charges for: (1) delivery; (2) transmission; or (3) transportation. Charges that are not clearly denominated will be included in the tax base as part of the gross receipts from the sale.
Any separately stated charges must be representative of a true or reasonable cost of delivery based upon the underlying products or services sold and provided by either the retailer or service provider directly, or by a third part or agent, such as a package delivery company, used by the retailer or service provider.
The retailer must maintain records regarding delivery costs and charges and the records must be available for, and are subject to inspection by, the Director of Taxation or authorized representative at all times during normal business hours. Depending on the amount of the delivery charges relative to the sales price of items sold, detailed, itemized lists of all the charges may be required for each delivery.
Exclusions from delivery charges.
Delivery charges do not include the cost of the transportation to the seller (freight-in), fuel surcharges, or any charge-backs for delivery charges on returned goods.
Distinction between cost of product and cost of delivery.
Sometimes, there is a clear line of demarcation between the cost of the product that is sold and the delivery charges associated with the sale, such as when a large item is sold by a “big box” store, and it is transported by the purchaser at the time or sale or can be delivered to the purchaser by the store later for an additional fee. At other times, such as when services are being sold, the line between the cost of the product and any associated delivery charges may be more difficult to delineate. But, if delivery charges are not to be included in the sales or selling price, they must be clearly and separately stated on the invoice, bill of sale, or other similar document provided to the purchaser.
It is the retailer’s decision as to how to prepare and issue billing statements. Kan. Stat. Ann. § 79-3602(ll)(1)(D)(ii) does not mandate that charges be separately stated on the invoice, bill of sale, or similar document given to the purchaser. If such charges are not separately stated, the will be included in the sales or selling price and subject to sales tax, but retailers who do not break out delivery fees will not be obligated to do so. Instead, for sales tax purposes, these retailers will be able to maintain current business practices for the foreseeable future. The Department has declined to opine or give advice regarding billing issues that are not directly related to sales tax.
This change in the treatment of delivery charges will affect local sales tax, in addition to the state sales tax, which is imposed by cities, counties, and political subdivisions, along with associated community improvement districts (CIDs), transportation development districts (TDDs), and STAR bond project districts. After July 1, 2023, these delivery charges will not be included in the sales or selling price if separately stated, and therefore, will not be subject to local sales tax, in addition to the exemption from state sales tax.
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