Kansas Retailers' Sales Tax
Application of Sales Tax to a Debtor's Redemption of a Repossessed Motor Vehicle
REVENUE RULING 19-1997-1
May 14, 1997
Application of Sales Tax to a Debtor's Redemption of a Repossessed
K.S.A. 79-3602( c ); K.S.A. 84-9-506
The purpose of this revenue ruling is to clarify the application of state and local sales tax to a lender's transfer of a repossessed vehicle back to the original buyer who has fulfilled his or heir loan obligations following default and is re-acquiring title to the vehicle.
The Kansas Uniform Commercial Code provides a right of redemption to a debtor whose property is repossessed because of a loan default.
. A debtor's right to redeem a vehicle that is subject to Kansas title and registration laws continues even after the lender has repossessed and titled the vehicle in its name. The debtor's right to redeem ends if and when the lender sells the repossessed vehicle to someone other than the debtor.
When a lender grants a debtor permission to redeem a vehicle pursuant to K.S.A. 84-9-506, the transaction is not regarded as a sale and is not subject to Kansas sales tax. The lender shall transfer its title to a repossessed vehicle by assigning the repossession title to the debtor.
Example of a vehicle redemption by a debtor
: Following a loan default, a lender seizes the debtor's vehicle. The lender then applies for and obtains a repossession title from the county treasurer. (
See Repossession Titles, Sec. 3-10, Kansas County Treasurers' Instruction Manual
). Several weeks later, the debtor pays off the entire amount of the underlying loan plus the additional costs that the lender incurred when repossessing the vehicle. In return, the lender relinquishes possession of the vehicle and assigns the repossession title to the debtor by completing the assignment section on the back of the repossession title and delivering the title to the debtor. This transfer of title and possession is a redemption that is not subject to Kansas sales tax.
If you have any questions or wish to discuss this notice, please contact the Taxpayer Assistance Bureau, Kansas Department of Revenue, Topeka Kansas 66625-0001 at (913) 296-0222 or the Titles and Registration Bureau, Kansas Department of Revenue, Topeka, Kansas 66626-0001 at (913) 296-3621.
John D. LaFaver
Secretary of Revenue
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