Private Letter Ruling

Ruling Number:P-2007-003
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Labor services related to original construction.
Keywords:
Approval Date:04/05/2007



Body:
Office of Policy & Research


April 5, 2007

XXXXX
XXXXX
XXXXX Dear XXXXX:

Thank you for your recent letter. You work for a general contractor that is finishing a 50,000 square foot space in a building that was built about fifteen years ago. The building has been used as a warehouse. The new owner will transform the building for a different use by installing new walls, flooring, and a ceiling in what was warehouse space. You ask if this work qualifies as the original construction of a building. This would allow the construction services to go untaxed pursuant to K.S.A. 2006 Supp. 79-3603(p). Sales of materials purchased by the general contractor, subcontractors, building owner, and others would continue to be subject to sales tax. See EDU-26, Sales Tax Guidelines for Contractors and Contractor-Retailer.

The answer to your question is no. The labor services that you describe do not qualify as original construction. Therefore, the general contractor you work for should charge sales tax on its labor services when it bills the building owner for the work being done. In addition, the general contractor should pay sales tax to its subcontractors as explained in EDU-26.

The question of whether the construction services that you describe should be taxed or not was answered by the Kansas Supreme Court in the following discussion found in J.G. Masonry, Inc. v. Department of Revenue, 235 Kan. 497, 680 P.2d 291 (1984):
I. THE "ORIGINAL CONSTRUCTION" and "BUILDING" EXEMPTIONS IN K.S.A. 1978 Supp. 79-3603

The taxpayer first contends that two of its construction projects upon which sales taxes were levied come within the "original construction" exemption of the statute and thus should not have been taxed. The pertinent portions of the statute read:


For purposes of answering your question, the decision in J.G. Masonry still controls. The various statutory changes that have been enacted since the decision was handed down do not effect the Supreme Court's conclusion, which continues to answer your question. That answer is that the labor services you describe are taxable and do not qualify for exemption as original construction.

This is a private letter ruling pursuant to Kansas Administrative Regulation 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this ruling. Please call me if you need to discuss anything further.


Date Composed: 04/16/2007 Date Modified: 04/16/2007