Kansas Sales & Use Tax Guide: Rates, Nexus, and Compliance

Sales and Use Tax Basics in Kansas

Sales Tax

Kansas is one of the 45 US states that has a long history of applying retail sales tax, dating back to 1937. The original applicable rate was 2%, which, through the years, significantly increased. Sales tax is applied to retail sales, which include the sale, rental, or lease of tangible personal property, that is, tangible goods.

Use Tax

In Kansas, the use tax is officially known as the Compensating Use Tax. There are two types of use tax in Kansas: a Consumers’ Compensating Use Tax, paid directly by consumers to the Kansas Department of Revenue, and a Retailers’ Compensating Use Tax, which is collected by retailers in other states from their Kansas customers. 

The use tax is due on any out-of-state purchases, regardless of whether the goods are shipped into Kansas or picked up in another state and brought back to the state. As a general rule, the tax applies as a privilege tax on using, storing, or consuming within this state any tangible good for which the sales tax has not been collected and remitted.

Kansas Sales and Use Tax Rates

Kansas imposes a 6.5% statewide sales and use tax, applicable to all retail sales of tangible goods. In addition to this, Kasas' legislature allows that districts, municipalities, and counties define local sales and use tax rates. Therefore, the combination of state and local taxes can amount to 12.125%.

For example, the City of Roeland Park has three districts. Depending on the consumer's location, the total applicable tax rate, including statewide, city, county, and district taxes, can be 10.475%, 9.975%, or 11.475%.

Tax-Exempt Transactions

Tangible goods for which the excise tax has already been paid, such as motor vehicle fuel, are exempt from sales and use tax. However, there are some limitations to this rule, so cigarettes, e-cigarettes and related consumables, cereal malt beverages, malt products, motor vehicles, tires, dry cleaning and laundry, and receipts from regulated sports contests are excluded.

Furthermore, tangible goods or taxable services purchased by the State of Kansas or its political subdivisions, as well as public or private non-profit hospitals, are also exempt from sales and use tax. Any sales made to contractors building, renovating, repairing, furnishing facilities in hospitals, schools, educational institutions, state correctional institutions, or United States federal government facilities are considered exempt sales.

Additionally, tangible goods consumed in production, manufacturing, processing, mining, drilling, refining, compounding, waste treatment, or services, as well as those used for crop irrigation for resale, are exempt from tax.

Nexus Rules in Kansas

Taxable persons who are physically present in Kansas or establish a nexus through other means, such as engaging in economic activity in the state without being physically present there, are required to register for sales and use tax, collect it, and remit it to the Kansas Department of Revenue.

Physical Nexus

Taxable persons establish a physical nexus in Kansas if they directly or indirectly maintain any physical facility there, such as an office, warehouse, distribution center, or any other place of business. Additionally, using any person physically present to sell, deliver, install, assemble, provide service, repair, or solicit sales or orders is sufficient to establish a nexus.

Furthermore, a physical nexus may be established when an out-of-state seller enters Kansas to perform taxable services. This rule applies to contractors, repair providers, or other service professionals who physically operate in the state. Maintaining inventory or stock of tangible goods in Kansas for regular sales is another way for taxable persons to establish a physical nexus.

Economic Nexus

In 2021, the Kansas House and Senate introduced legislation to establish an economic nexus threshold for out-of-state or remote sellers making sales to local consumers. Therefore, taxable persons without a physical presence in Kansas are considered retailers doing business in the state if their gross receipts from sales to Kansas customers exceed USD 100,000.

Marketplace Nexus

The same rule that applies to out-of-state or remote sellers applies to marketplace facilitators and marketplace sellers. This means that if they exceed a USD 100,000 threshold from their gross receipts from direct or facilitated sales to Kansas customers, they must register for, collect, and remit taxes.

Taxable Goods and Services in Kansas

The sales tax generally applies to retail sales, rentals, or leases of tangible goods, charges for labor services to install, use, repair, service, alter, or maintain tangible goods, and sales of admissions to places that provide amusement, entertainment, or recreational services.

Therefore, retail sales of tangible goods such as food, clothing, furniture, vehicles, computers, equipment, books, and tapes are taxable. Sales of computer software, as well as the services of modifying, altering, updating, or maintaining computer software, are subject to sales tax. Additionally, sales of computer equipment and hardware are also subject to sales tax.

Regarding services, they are generally not taxable unless specifically listed as taxable in the applicable tax law. The list of taxable services includes installation services, such as installing plumbing, wiring, cabinets, light bulbs, and other fixtures in an office building, planting trees, shrubs, or grass, or installing tires or parts on a vehicle. Furthermore, painting, wallpapering, applying fertilizer or weed killer, waxing floors, resurfacing parking lots, and alteration services, such as changing or altering the furniture, software, or clothing, are all taxable.

Bundled Transactions and the True Object Test

Similar to other US states, Kansas legislation defines bundled transactions as a single, non-itemized sale that combines two or more distinct and identifiable products, excluding real property or services related to real property, for a single overall price.

If a transaction includes a tangible good sold together with the service, where the service is the true object of the transaction, such as hardware sold solely to enable that service, the sale is treated as a service. When services are sold together, where one is merely supporting the other, with the true object of the transaction being the primary service, the applicable rules are those relating to the primary service.

When a transaction includes both taxable and non-taxable products, and the taxable portion is 10% or less of the total, the transaction is exempt from sales and use tax under the de minimis rule.

E-Commerce Framework

Kansas originally introduced the economic nexus rules applicable to out-of-state or remote sellers in 2019. However, the initial legislation did not state a threshold. Therefore, any remote seller selling tangible goods or services into the state had to register and begin collecting tax by October 1, 2019. However, in July 2021, Kansas enacted a Bill that set the economic nexus threshold at USD 100,000.

The threshold is calculated based on the gross receipts from sales made to Kansas consumers. Gross receipts refer to the total value received from retail sales made within the state, including all forms of consideration, such as money, credit, property, or any other item of value. However, taxable persons may deduct two specific amounts when reporting gross receipts: the value of returned goods and the value of any trade-in property accepted as part of the transaction.

Once taxable persons exceed the threshold, they must register for, charge, collect, and remit statewide and local sales tax.

Marketplace Rules

While some remote sellers offer and sell tangible goods and taxable services through their websites and similar channels, other sellers utilize the online marketplace to make retail sales to consumers in Kansas. These are commonly referred to as marketplace sellers, and they are subject to marketplace rules.

As defined by these rules, sellers’ primary responsibilities are shaped by their agreements with the facilitator and whether the facilitator is collecting tax on their behalf. Therefore, if the marketplace facilitator is registered for sales tax in Kansas, the responsibility for collecting and remitting sales tax on facilitated transactions lies with the marketplace facilitator, thereby relieving marketplace sellers of the duty to collect.

However, the facilitators may obtain a waiver if at least 95 % of their sellers already collect and remit sales tax, which would make marketplace sellers liable for sales tax purposes on their sales through the online platform. 

Additionally, the facilitator and seller may agree, in which case the seller is responsible for collecting and remitting taxes. However, one condition must be met for this to apply. To do this, the seller must have USD 1 billion in US gross sales and must register with the state of Kansas before the facilitator can rely on the seller’s collection.

Digital Goods and Services

Generally, sales tax applies to digital goods if they include tangible components. Therefore, the sales of prewritten computer software are taxable if delivered on a USB or some other tangible medium. Additionally, the sales of prewritten computer software are taxable if delivered electronically as well. This includes download or digital transfer, such as the “load and leave” method, where the seller installs the software on the buyer’s computer without transferring any physical media.

Digital Marketplace

In 2021, the State of Kansas introduced the marketplace facilitator rules, subjecting online marketplaces to sales and use tax rules and regulations. Under the Kansas rules, any marketplace facilitator selling or facilitating the sale of tangible goods or services subject to tax in Kansas is required to collect and remit sales and use tax and follow all applicable procedures and requirements. However, not all marketplace facilitators are subject to these rules.

Digital Platform Operator

For a marketplace facilitator to become liable for collecting and remitting sales tax in Kansas, its gross receipts from direct sales to consumers or facilitated sales on behalf of third-party sellers, commonly referred to as marketplace sellers, must exceed the USD 100,000 threshold. Once a marketplace facilitator exceeds the threshold, it must register, collect, and remit sales tax on all direct and indirect sales, as well as sales facilitated by the marketplace.

However, if 95% of the marketplace sellers are collecting and remitting sales tax, the marketplace facilitator may obtain a waiver that releases it from sales tax liability. Additionally, a facilitator may be released from sales tax collection and remittance responsibility if it signs an agreement with the seller, whose US annual gross sales exceed USD 1 billion, and wants to assume the liability itself.

Filing and Payment Requirements in Kansas

Sales tax return filing and payment frequency in Kansas depend on the total tax for which any retailer is liable. Therefore, if the total amount of taxes due in a calendar year is less than USD 1,000, tax returns are filed annually by January 25 of the following year. 

If the amount of due taxes is between USD 1,00 and USD 5,000 in the calendar year, quarterly reporting on or before the 25th day of the month following the end of each calendar quarter is required. Monthly tax returns are required when the total amount of owed taxes in a calendar year is above USD 5,000.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Those who fail to meet filing and payment deadlines will face penalties and interest charges. If a taxable person fails to file a tax return or pay due taxes on time, a penalty equal to 1% of the unpaid tax per month or part of a month, up to a maximum of 24%, plus interest from the due date until paid, is imposed.

Additionally, if during a tax inspection or audit, it is determined that the taxable person underpaid taxes for a period where a return was filed and tax paid, a penalty of 1% per month applies up to 10%, unless the underpayment is due to a failure to reasonably comply, in which case the penalty is 25% of the unpaid tax. Tax evasion or fraudulent activities will result in a 50% penalty on the due taxes.