The Kansas retail sales tax is levied statewide at the rate of 6.5 percent on retail sales of tangible personal property and certain services, absent specific exemption. Specific exemptions may be found in KSA 79-3603 and KSA 79-3606. Additionally, certain services are not subject to the retail sales tax.
Statutory Exemptions
As of July 1, 2023, Kansas statutes include 92 subsections devoted to exemptions. These exemptions include conceptual exemptions, exemptions based on the definition of retail sales; legal exemptions, exemptions based on federal requirements; and public policy exemptions. The total amount of state revenue forgone due to sales tax exemptions in fiscal year (FY) 2022 was $8.066 billion.
Conceptual Exemptions
For FY 2022, the Kansas Department of Revenue (KDOR) estimated that conceptual exemptions resulted in a reduction of revenue in the amount of $5.362 billion. Of that amount, $3.765 billion can be attributed to the exemption found in KSA 79-3606(m), which exempts from taxation property that becomes an ingredient or component part of property or services produced or manufactured for ultimate sale at retail.
Legally Required Exemptions
Legally required exemptions resulted in reduction of revenue in the amount of $90.2 million in FY 2022, according to estimates by KDOR. This amount was primarily made up of $49.4 million lost to purchases by the federal government or its agencies and instrumentalities; and $19.57 million lost to purchases by railroads or public utilities for use in the movement of interstate commerce.
Government Purchase Exemptions
Exemptions for government purchases accounted for $1.417 billion in foregone revenue in FY 2022, the largest component of which was purchases by the State of Kansas or its political subdivisions.
Public Policy Exemptions
Public policy exemptions accounted for $1.191 billion in lost revenue according to KDOR’s FY 2022 estimates. Of this amount, $2.6 million was due to exemptions for charitable organizations named in statutes, and an additional $38.6 million was due to broadly applicable charitable, religious, or benevolent exemptions.
Service Exemptions
While there is no general application of the sales tax to services, of those services that are otherwise specifically taxable, statutorily provided exemptions resulted in $5.5 million of foregone revenue in FY 2022.
by Edward Penner
Principal Economist
785-296-3824