SALT Report 2134 – The Kansas Department of Revenue has updated its sales and use tax publication for political subdivisions. The publication explains how tax applies to a subdivision’s business activities as an exempt arm of the government, and as a retailer of taxable goods and services.
Although political subdivisions are generally exempt from paying sales or use tax on the majority of their purchases, the exemption is not unconditional. Kansas law K.S.A. 79-3606(b) states that “a sales tax exemption is provided to political subdivisions for the purchase, lease, or rental of tangible personal property and taxable services.” However, the purchase must be a direct purchase for the exclusive use of the political subdivision and not for use in the provision of gas, water, electricity, or heat, or in any other taxable business.
To qualify as a direct purchase, the invoice must be made out to the political subdivision and payment must be made with the subdivision’s funds. If either condition is not met, the sale is taxable. Additionally, direct purchases exclude any form of reimbursement. For example, items or services purchased by an employee or agent of a political subdivision with their personal funds are taxable, even if the individual is on official business and will be reimbursed by the political subdivision.
The updated publication also addresses the taxability of construction or repair projects, utility sales, as well as retailer’s responsibilities, reporting and paying sales and use taxes, and exemption certificates.
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