Sales Tax Guidelines for Businesses that Sell and Service Appliances and Electronic Products (EDU-28)
Date Issued: 5/31/05
Tax Types: Sales and Use Tax
Department of Revenue guidelines are intended to help you become more familiar with Kansas tax laws and your rights and responsibilities under them. While every attempt is made to provide you with information that is consistent with the Kansas tax statutes, regulations, and court decisions, nothing in this publication supersedes, alters, or otherwise changes any provision of the Kansas tax laws. Department guidelines are not legal rulings and any information that is inconsistent with Kansas tax laws is not binding on either the department or the taxpayer. Not every potential tax situation is covered in these guidelines. If you have any questions about how Kansas sales and use tax laws apply to your business, please visit the department's Policy Information Library on our web site, www.ksrevenue.org, or call the department's Taxpayer Assistance Center at 1-785-368-8222.
Application of this publication. This publication explains how sales tax applies to the sale and servicing of appliances and electronic products. Electronic products include televisions, computers, radios, receivers, satellite dishes, and other similar products. If you sell or service appliances and electronic products in Kansas, you are a retailer and must register with the department and collect sales tax from your customers.
For customer sales, you are required to charge and collect sales tax on the total amount that you bill to your customer, including any delivery and set-up charges. Local sales tax on sales of appliances and electronic products is sourced to the place where customer delivery is made.
For customer repair services, you are required to charge and collect sales tax on the total amount that you bill to your customer, including the charges for repair services and for any repair and replacement parts. Your services are taxable whether you perform them at your customer's residence or place of business, or at your shop. Local sales tax on your services and parts is sourced to the place where the services are first used. This is where the customer takes possession of the repaired article in Kansas, or the customer's home or business in Kansas when the repairs are done there.
If you conduct business as a contractor-retailer and sell appliances or electronic products, you are acting as a retailer when you sell, deliver, and set up these things. From time to time, a contractor-retailer may enter into a mixed contract and agree to sell merchandise at retail and to perform construction services. This publication explains how sales tax applies to mixed contracts.
These guidelines should be read with other department publications that apply to your business. These may include the Sales Tax Guidelines for Contractors and Contractor-Retailers, the Sales Tax Guidelines for Fabricators, and the Sales Tax Guidelines for Contractor-Fabricators and Contractor-Manufacturers. Other materials that you'll need to review are the information guides and other publications listed at the end of these guidelines that pertain to your business.
Effective date for this publication. The guidelines in this publication shall take effect on July 1, 2005. These guidelines supersede and revoke all prior department letters, information guides, and other publications that discuss the issues that are addressed here.
Registration. Before you begin to do business in Kansas, you must register with the department of revenue. You can do this by visiting the KSBusinessCenter at www.kansas.gov and following the appropriate instructions. This web site is a partnership between the Kansas Department of Revenue, the Kansas Secretary of State's Office, the Information Network of Kansas, and other business-oriented state agencies. The goal for the site is to provide a central location where Kansas businesses can electronically file all of the reports required by Kansas law. While the web site is under development, it already contains a great deal of useful information for new businesses.
You can also register by submitting a completed Business Tax Application Form (CR-16) to the department. Form CR-16 with instructions is published in the Business Tax Application Booklet, Publication KS-1216. You can obtain a copy of Publication KS-1216 from our website at www.ksrevenue.org or by calling the department's forms request line at 1-785-296-4937. Both resident and nonresident contractors who do work in Kansas must register.
Whichever way you register, you must complete the application form with care since the information you provide will determine how the department registers your business for state tax purposes. Depending on how your accounts are set up, you may be required to file sales and use tax returns either annually, quarterly, or monthly. If you are not approved to file your sales and use tax returns electronically, the department will routinely mail you a tax return that is printed with your business name and mailing address, your account number, the tax type being reported, the reporting period, and the due date. You must file a return even if you don't receive one in the mail. You can request a blank return by calling the forms request line at 1-785-296-4937 or you can download one from our web site at www.ksrevenue.org. You must file a timely return for each reporting period, including those when you're reporting zero tax.
Glossary --- As used in this publication:
Appliance means a refrigerator, freezer, range, stovetop, oven, microwave oven, washer, dryer, dishwasher, garbage disposal, trash compactor, window air-conditioner, small appliances such as coffee makers, and other similar products that are normally used or sold for personal, family, or household use. This term also refers to the same items when used commercially. Whether built-in or free-standing, appliances are treated as tangible personal property and not as fixtures or other parts of a residence or commercial building when they are serviced or repaired. Appliances do not include, among other things, central vacuum systems, HVAC systems, soft-water systems, hot water heaters, attic fans, or hard-wired lighting fixtures.
Contractor means a person or business that contracts to furnish materials and labor to construct, alter, repair, or improve real property, which includes buildings and other structures. A contractor expends its labor and skill to convert building materials into real property improvements. A contractor sometimes contracts to furnish labor only, using materials provided by the property owner or by another contractor. Contractor means general contractor, subcontractor, or specialty contractor, unless the context indicates otherwise.
Contractor-retailer means a person or business that acts as a contractor when it performs construction contracts and as a retailer when it sells tangible personal property at retail. A contractor-retailer holds itself out as providing construction services and operates retail showroom or otherwise maintains an untaxed resale inventory to sell merchandise from. A contractor-retailer withdraws merchandise from the untaxed resale inventory to use in their construction projects and to sell at retail.
Electronic product includes any television, computer, radio, receiver, amplifier, pre-amplifier, audio or video recorder or playback equipment, video camera, video game, video monitor, satellite receiver, satellite dish, computer accessory including printers and video screens, electronic control systems, and any other kind of similar product that is normally sold for personal, family, or household use. This term also refers to the same products when they are sold for commercial use. Whether built-in or free standing, electronic products are treated as tangible personal property and not as fixtures or other parts of real property.
Mixed contract means a single contract that calls for the performance of construction services and for the retail sale of tangible personal property. A contractor-retailer who enters into a mixed contract is treated as the consumer of the construction materials that it uses on the project and as the retailer of the goods that it sells under the contract.
Retailer includes a person or business that sells or services appliances or electronic products. Retailers of appliances or electronic products include businesses that operate as contractor-retailers.
Sales or selling price is defined at K.S.A. 2004 Supp. 79-3602(ll) to mean "the total amount of consideration . . . for which personal property or services are sold . . . ." The definition provides that no deductions are allowed for, among other things:
- the cost of materials used, labor or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller and any other expense of the seller;
- delivery charges; and
- installation charges.
Set-up services include placing an appliance or electronic product in working order by assembling it, sliding it into an existing opening, locating and fixing it in place, connecting it to existing water or gas services, plugging or wiring it into existing electrical services, connecting it to existing discharge pipes or vents, programming its controls, and so forth. Charges for set-up services are considered to be part of the selling price and are taxed whenever the sale of the property is taxed.
Sourcing means determining the tax situs of a transaction. The tax situs determines which local sales or use tax applies to sales made and services performed in Kansas.
Tax base means the dollar amount on which sales tax is computed. It is the amount that is multiplied by the sales tax rate to yield the amount of sales tax due from the customer. The tax base for retail sales is the sales or selling price of the goods or services being provided.
Sale and set up of appliances and electronic products.
Overview: Tax base. When the sale of an appliance or electronic product is being negotiated, a retailer may agree to deliver and place the item being sold in working order in the buyer's home or business. This is a common retail practice for sales of appliances and electronic products. Placing an appliance or electronic product in working order can require assembling it, sliding it into an existing opening, locating and fixing it in place, connecting it to existing water or gas services, plugging or hard wiring it into existing electrical services, connecting it to existing discharge pipes or vents, connecting it to other electronic products, programming its controls, adjusting its operation, and so forth. These services are referred to collectively as "set-up services."
Charges for set-up services are part of the "sales or selling price" of appliances and electronic products sold at retail and are taxable whenever the sale of the goods is taxable. K.S.A. 2004 Supp. 79-3602(ll). The tax base for these sales is the total amount charged to the buyer, including the cost of the goods, delivery charges, and set-up charges. The set-up charges shall be included in the tax base regardless of whether: (1) the set-up services are performed by the retailer's employees or by a third party hired by the retailer; (2) the item being set-up becomes a fixture for real property or Uniform Commercial Code purposes; or (3) the set-up services are performed at a residence or at the same time as the original construction of a building or facility. K.S.A. 2004 Supp. 79-3602(ll). As with other taxable retail sales, local sales tax is sourced to the location where delivery is made.
Set-up charges are taxed as part of the retail sale of the appliance or electronic product --- not as separate services. Because set-up charges are taxed as part of the sale, they do not become exempt when delivery and set-up occur during the original construction of a building or during the reconstruction, restoration, remodeling, renovation, repair, or replacement of a residence. A retailer that hires a third-party to deliver and set up appliances or electronic products may provide the third-party installer with a resale exemption certificate for the services. A retail exemption certificate is appropriate here because appliances and electronic products are treated as tangible personal property however installed. In addition, the customer previously paid sales tax on the article's selling price, which includes the set-up services.
Repairs of appliances and electronic products. The repair and servicing of appliances and electronic products are treated as being done to tangible personal property and are taxable, whether the appliances or electronic products are built-in or free standing. This includes stovetops, ovens, refrigerators, and other appliances that are installed in cut outs or cabinet compartments built to accommodate the particular appliance. Typically, these appliances are removed from their compartment or cut out, disconnected from utility services, and repaired or serviced as tangible personal property. The residential exemption does not apply to these services because the appliances and electronic products are treated as tangible personal property.
A contractor-retailer that repairs appliances or electronic products is treated as a retailer that is servicing tangible personal property and not as a contractor that is providing construction services. Any repair or replacement parts that the contractor-retailer provides shall be treated as being sold to the customer. This means that a service provider is required to charge sales tax on the total amount billed to the customer. This is the same treatment that is accorded to automobile repair shops, jewelers, shoe repair shops, and other businesses that repair tangible personal property. The contractor-retailer should not accrue sales tax on withdrawals from inventory as it would do when acting as a contractor.
Local tax is sourced to the place where the repair services are first used. This is the customer's home or business in Kansas where the repairs are performed or the Kansas location where the customer takes possession of the repaired item. Special sourcing rules apply when motor vehicle electronics are serviced or installed. See Notice 03-10, Section V, I(b)(1): Special rules for repair services performed on motor vehicles.
Because Kansas taxes "servicing, altering, or maintaining" property, any charges for work done on appliances or electronic products are taxable, even if the work may not technically constitute repair service. See K.S.A. 2004 Supp. 79-3603(q).
Warranty services and service agreements. Sales of extended warranties, service agreements, and maintenance agreements ("service contracts") for appliances, electronic products, and other property are taxable. K.S.A. 2004 Supp. 79-3603(r). Charges for service contracts are taxable whether the property is located in a business or residence. Businesses that sell service contracts are referred to here as "service-contract providers." Repair services and parts that the contract service provider furnishes later in satisfaction of the service contract are treated as having been paid for when the service contract was entered into and are exempt from any additional sales or use tax.
Some service-contract providers hire third-party repairmen to do the service work that the service-contract provider is obligated to furnish under the service contract. To claim the sales tax exemption on the repairman's charges for services and parts, the service-contract provider should complete the ST-28, "Resale Exemption Certificate," and give it to the repairman. On the line "Description of tangible personal property or service purchased" the service-contract provider should explain: "Repair parts and services for goods being serviced or repaired under service, maintenance, or extended warranty contract on which sales tax was collected." The certificate should include the service-contract provider's Kansas sales tax registration number. While this certificate exempts the parts and services that the service-contract provider pays for, any deductible or other charge that is billed to the customer is taxable since the charge isn't covered by the underlying tax-paid service contract.
Kansas administrative regulations previously provided that services and parts provided under an original manufacturer's warranty are taxable unless the customer was billed separately for the warranty at the time of sale. K.A.R. 92-19-62. This requirement for a separate billing on a manufacturer's warranty no longer applies. When a manufacturer hires a third-party repairman to perform warranty work, the manufacturer should complete the ST-28A, "Resale Exemption Certificate," and give it to the repairman. On the line "Description of tangible personal property or service purchased" the manufacturer should explain: "Repair parts and services for goods being serviced or repaired under a manufacturer's warranty." This will exempt the parts and services done under an original manufacturer's warranty, in the same way that parts and services are exempt under a tax-paid service contract.
Mixed contracts. A contractor-retailer enters into a mixed contract by agreeing to perform construction services and to sell furniture, appliances, electronic products, or other articles of tangible personal property as part of a single contract. When a mixed contract is entered into, the contractor-retailer is required to treat its transfer of tangible personal property to its customer as a retail sale. When billing the customer, the invoice shall clearly reflect the parts of the transaction that are retail sales and that the customer is being billed sales tax on the full selling price of the property, including any delivery and set-up charges.
To account for taxes on construction services under a mixed contract, the contractor-retailer should subtract the selling price of the tangible personal property and the tax paid on it from the total amount being charged to the customer. This subtraction leaves the amount being charged for the construction contract part of the mixed contract. The contractor-retailer should then apply the guidelines for contractor-retailers who are performing construction contracts to the construction contract amount. See Contractor-Retailer Guidelines: Taxing construction contracts performed by contractor-retailers.
Rather than entering into a mixed contract, a contractor-retailer and its customer may choose to enter into two separate contracts, with one being a retail sales contract and the other being a construction contract. Each contract must reasonably reflect the value of the services or property being provided.
Mixed contracts for home theaters. Often, electronic equipment is sold as part of a complete package that requires the home theater components to be delivered and set-up and construction services be performed, such as running wires behind walls, cutting holes in walls for speakers, installing cabinetry, etc. This kind of contract is a mixed contract that calls for the retail sale of electronic products and for the performance of construction services.
Under these contracts, set-up services can involve locating or affixing the equipment in place, attaching and positioning a satellite dish, and attaching equipment to existing electrical and cable services, connecting components to other components, programming controls, adjusting the system's operation, and so forth. These set-up services are paid for as part of the sale of the electronic components and are taxed whenever the sale of the components are taxed.
When billing for a home theater, the billing shall clearly reflect that the sale, delivery, and set up of the electronic components are being treated as part of the retail sale of the components. These sales are fully taxed regardless of whether the equipment is delivered and set up during the original construction of a building or during the reconstruction, restoration, remodeling, renovation, repair, or replacement of a residence. Local sales tax on the equipment sale is sourced to the location where delivery occurs.
If the customer billing does not show the selling price of the electronic components as a separate line item charge, the business must collect sales tax on the entire amount that is charged to the customer. When a customer billing contains separate line item charges for the components, the home theater business should subtract the selling price of the electronic components and the associated sales tax from the total amount being charged to the customer. This subtraction leaves the amount being charged for the construction part of the mixed contract.
When the construction services are exempt, such as for residential or original construction, the home theater business does not charge the customer any additional sales tax on the separately-stated construction charges. The business is required to accrue tax on any material taken from its resale inventory for the project, such as wire and electrical outlet boxes.
When construction services are taxed, the home theater business should apply the guidelines for contractor-retailers who are performing a construction contract to the construction charge amount. See Contractor-Retailer Guidelines: Taxing construction contracts performed by contractor-retailers. The separately stated construction charge must be reasonable in light of the overall contract for the sale, delivery, and set up of the electronic equipment and for the construction services being performed.
Some home theater businesses sell and set up the electronic components and hire third-party contractors to provide the needed construction services. When this is done, the business should charge the property owner sales tax on the line item charges for the sale and set up on the electronic components. The third-party contractor should account for sales tax as a contractor and charge the business accordingly. When the business re-bills the customer to recover the third-party contractor charges, the customer billing should show the contractor charges and any associated tax as a separate, untaxed, lump-sum amount, whether the contractor charge to the business is being marked-up or not.
Spec houses. A speculative or "spec" house is a house built before it is sold. The builder speculates that he or she can sell it at a profit. Most builders of spec houses are general contractors. As contractors, these businesses must pay tax on the full selling price charged to them for appliances and electronic products. A very small percentage of spec builders are also dealers of appliances or electronic products. When building a spec house, the builder/dealer shall accrue tax on the appliances or electronic products that are removed from its untaxed inventory. When the spec home is sold, the builder/dealer is deemed to be selling real property and not taxable appliances or electronic products.
The following publications are available free from the Kansas Department of Revenue. Obtain your copy by visiting our website at www.ksrevenue.org, or by calling our voice mail Forms Request Line at 785-296-4937. While the Department of Revenue has discontinued printing some of these publications, all of them are available on our web site.
- Sales Tax Guidelines for Contractor and Contractor-Retailers
- Sales Tax Guidelines for Fabricators
- Sales Tax Guidelines for Contractor-Fabricators and Contractor-Manufacturers
- Pub. KS-1216, Kansas Business Tax Application
- Pub. KS-1500, North American Industry Classification System
- Pub. KS-1510, Kansas Sales and Compensating Use Tax
- Pub. KS-1520, Kansas Exemption Certificates
- Pub. KS-1526, Kansas Sales and Use Tax for Motor Vehicle Transactions
- Pub. KS-1527, Sales and Use Tax for Kansas Political Subdivisions
- Pub. KS-1540, Kansas Business Taxes for Hotels, Motels & Restaurants
- Pub. KS-1550, Sales and Use Tax for the Agricultural Industry
- Pub. KS-1560, Tax Guide for Schools and Educational Institutions
- Pub. KS-1700, Sales Tax Jurisdiction Code Booklet
- KW-100, Kansas Withholding Tax Guide
Taxpayer Assistance. If you have questions about this publication, please contact the Taxpayer Assistance Center at 1-785-368-8222. Our fax number is 1-785-291-3614. Additional copies of department publications are available by calling the department's forms request line at 1-785-296-4937 or by download from our website: www.ksrevenue.org. The number for the department's hearing impaired TTY is 1-785-296-6461.