Sales tax on invoices in Kansas

Kansas contractors pay sales tax on all their materials, and the project decides whether their labor is taxed: labor on residences and on original construction is exempt, while commercial remodel and repair labor is taxable.

Who registers for Kansas retailers’ sales tax

The Kansas Department of Revenue’s contractor guide, Pub KS-1525, says contractors, subcontractors and repairmen who perform taxable labor services in Kansas must get a Kansas sales tax number to report and remit the tax they collect, and contractor-retailers must also register to collect tax on their retail sales. Those who perform only original construction or residential labor services don’t need to register, but they still pay sales or use tax on all their materials and supplies. You apply through the Department’s KDOR Customer Service Center.

Materials: the contractor pays the tax

All contractors, contractor-retailers included, are the final consumers of the materials they install for others and pay Kansas sales or use tax on them, whether the project is original construction, remodeling or repair. They can’t use an ST-28A Kansas Resale Exemption Certificate or an ST-28W Contractor-Retailer Exemption Certificate to buy their materials without tax. A project with a Project Exemption Certificate (PEC), covered in the watch-outs below, is an exception.

Labor: residential and original construction exempt, commercial remodel taxable

• Residences: labor to install or apply property is exempt when it involves the original construction, reconstruction, restoration, remodeling, renovation, repair or replacement of a residence. A residence is where people customarily live, such as a single-family home, duplex, townhouse, apartment or condominium, plus the yards, garages, sidewalks and driveways that serve it; accommodations routinely rented for 28 consecutive days or less don’t count. Repairs to a residence are exempt whatever caused the damage.
• Taxable even at a residence: labor to install property as part of its retail sale, such as appliances or draperies, and labor to repair tangible personal property, such as dishwashers, washers and dryers or TVs.
• Original construction: the first construction of a building or facility, with land improvements around it such as landscaping and fencing; adding an entire room or floor; completing an unfinished part of an existing building for the first owner, when all four of the Department’s conditions are met; rebuilding after fire, flood, tornado, lightning, explosion, windstorm (straight-line winds of at least 80 miles per hour), ice loading and attendant winds, terrorism or earthquake; and bridge or highway work.
• Commercial remodel: installing, applying, servicing, repairing, altering or maintaining property on an existing commercial building or facility is taxable labor. Pub KS-1525’s examples include remodeling, painting, plumbing, electrical or HVAC work, roofing, siding and guttering, even changing light bulbs. Repairs to commercial property damaged by hail, ice, straight winds (other than the defined windstorm or ice loading), rain, snow, vandalism, age or any other cause are taxable.

A building used as both a residence and a business, such as an apartment complex, bed and breakfast, nursing home or business with the owner’s living quarters, splits its labor charges between the two, allocating charges that fit neither part by square footage. In the Department’s electrical example, rewiring a home whose gallery and gift shop take 30% of the floor space, the contractor charges tax on 30% of the labor, and the materials are fully taxable.

Subcontractors and repairmen

Each Kansas contractor or subcontractor collects and remits tax on its own taxable labor, including work for other contractors. Labor on real property can’t be resold, so a subcontractor doing taxable work for a general contractor charges it sales tax, unless the general contractor gives it a PEC.

Repairmen who install or repair items that aren’t part of the real property, such as appliances, machinery, equipment and vehicles, aren’t acting as contractors but as retailers of a taxable service. They buy parts with a Resale Exemption Certificate and charge tax on the whole bill, parts and labor, wherever the work is done. In Pub KS-1525’s example, a dishwasher repair for a homeowner at $15 for parts and $50 for labor owes tax on the $65 bill.

Two ways to bill taxable labor in Kansas

On taxable labor, bill either the contract price with the statement “all applicable sales taxes included” on the invoice, or the contract price of the taxable labor plus the sales tax separately stated. If you don’t separately state the tax in the contract, bid estimates, billings or other documents, you must state in them that all applicable sales taxes are included in the selling price.

When you separately state the tax, charge it only on the labor portion, never on the total contract amount: charging tax on the tax you’ve already paid on materials isn’t lawful. If you bill that way anyway, you get no deduction for tax-paid materials or subcontractor costs when you work out the tax due. On residential and original construction jobs, labor to install or apply property isn’t taxable and you’ve paid the tax on your materials, so there’s no tax to add, except for work that stays taxable there: installing property as part of its retail sale, repairing tangible personal property, and applying pesticides, herbicides or fertilizers.

Lawn care, landscaping and cleaning

• Never taxable: aerating, lawn cleanup, rototilling, dethatching, mowing, trimming and edging, soil testing, tilling and plowing, tree and stump removal, backflow testing, raking and snow removal.
• Always taxable: applying pesticides, herbicides and fertilizers, on the total charge for materials and labor, for residential and commercial customers alike, even at a residence or with original construction. Applicators buy those products exempt.
• Landscaping that installs or applies property is generally taxable, but not at a residence or in connection with original construction; planting trees, shrubs and flowers or installing irrigation at an existing commercial building is taxable.
• Cleaning alone, such as air-duct, carpet, chimney, drain, house, septic tank or swimming pool cleaning, is exempt. Cleaning that applies property, such as waxing, varnishing or protective coatings, is taxable, and nontaxable cleaning done with taxable work must be separately stated on the invoice, or the whole charge is taxable.

Plumbing and HVAC examples

In Pub KS-1525’s plumbing example, a new septic tank for a rural business, the excavation, backfilling and grading aren’t taxable, the contractor pays tax on the tank, and it collects tax on its fee to install it; if the excavation isn’t separately stated on the invoice, all the charges are taxable. In its heating and air conditioning example, an extended warranty sold with a furnace is taxable when the furnace goes into existing commercial property but not into a residence, and a residential maintenance contract is exempt.

Local tax at the job site

Various Kansas cities and counties add a local sales tax to the state rate on this page, as can special taxing districts. Contractors charge the rate in effect at the job site on the taxable labor portion of a contract, whatever its size, and local rates change only at the start of a calendar quarter. In the Department’s roofing example, a Wichita roofer charges Andover’s rate on a store in Andover and Hutchinson’s rate on a mall in Hutchinson, and no tax on the labor for a home in Wichita.

Watch-outs: exempt customers and out-of-state contractors

• Not every nonprofit is exempt. Only nonprofits issued a Tax Exempt Entity Exemption Certificate by the Department are, and on a contract with an exempt entity to furnish both materials and labor, only your labor is exempt as a direct purchase. The exception is a project with a PEC, which the Department or certain exempt entities issue and which exempts both the materials that become part of the project and the labor to build it; without one, include the tax you pay on materials in your bid.
• Nonresident contractors must register each Kansas contract over $10,000 and post a bond, generally 8% of the contract or $1,000, whichever is greater (4% or $1,000, whichever is greater, on a tax-exempt project). Failing to register and post the bond is a misdemeanor, with a fine of $100 to $5,000 on conviction.