Questions and Answers

Identifying Information:Drop Shipments
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Drop Shipments
Keywords:
Approval Date:04/26/2011



Body:

Q & A -Drop Shipments

How does Kansas sales tax apply to drop shipments?

The typical drop shipment sale involves three parties:

1. A supplier
2. A retailer
3. A customer

A drop shipment occurs when a retailer accepts an order for goods from a customer and then places the order with a supplier, such as a manufacturer or wholesaler, and the supplier delivers the goods directly to the retailer’s customer in the customer's home state.
The supplier may deliver the goods in its own truck, by common or contract carrier, or over-the-counter at the supplier’s location.
Goods include tangible personal property and canned software delivered electronically.

Tax Liability

Supplier
If a supplier has a Kansas tax license, the supplier must charge the retailer Kansas sales tax unless the retailer submits an exemption certificate claiming the sale is for resale. If a retailer is located out-of-state, the retailer may provide the vendor a resale exemption certificate that contains its Kansas retailers' compensating use tax number or a multi-jurisdiction exemption certificate with the retailer's home state's sales tax registration number. When the retailer provides a resale exemption certificate to the supplier, the supplier does not owe sales or use tax.

Retailer
The retailer collects and remits sales tax if it is registered as a retailer for sales tax purposes in the state where the goods are delivered, unless the customer can claim an exemption such as an exempt entity exemption or a resale exemption. If the customer provides an exemption certificate to the retailer that is valid in the state of delivery, the retailer does not owe sales or use tax on the drop shipment.

Customer
When the retailer does not collect and remit the applicable sales tax due on a drop shipment sale based on where the goods are delivered, the retailer’s customer must remit use tax directly to the department unless the customer can claim a Kansas exemption such as an exempt entity exemption or a resale exemption.

Example 1
Company A, located Gas City, Kansas, sells goods to Rosalita to be delivered to Olpe, KS. Company A orders the goods from Company B. Company B delivers the goods directly to Olpe, KS.
Company A provides Company B with a resale exemption certificate using its Kansas sales tax registration number. Company B does not owe Kansas sales tax.
Company A is responsible for collecting and remitting Kansas state and local sales tax because the goods are delivered in Kansas and because it provided a resale exemption certificate with its Kansas registration number to Company B.

Example 2
Company K, located in Illinois, sells a goods to Rosalita to be delivered to Olpe, KS. Company K orders the goods from Company B. Company B delivers the goods directly to Olpe, KS.
Company K provides Company B an exemption certificate using their Illinois sales tax registration number. Company B does not owe Kansas sales tax.
Company K does not collect Kansas sales tax because it is not registered with Kansas to collect Kansas sales or use tax.
Rosalita owes Kansas state and local use tax on this purchase.

Example 3
Company Y, from Kansas, sells a goods to Rosalita to be delivered to Omaha, NE. Company Y orders the goods from Company B. Company B delivers the goods directly to Omaha, NE.
Company Y provides Company B an exemption certificate using their Kansas sales tax permit number. Company B does not owe Kansas sales tax because the delivery is outside Kansas and Company Y has provided an exemption certificate. Any sales or use tax on this transaction is owed to Nebraska.




Date Composed: 04/27/2011 Date Modified: 04/27/2011