Kansas Sales Tax for Contractors: What to Put in Your Estimate

Why this matters on bid day

Sales tax is one of the few lines in a Kansas estimate that can be completely right or completely wrong with no gray area. Applying tax to labor on a new building over-prices your bid. Leaving it off a tenant-finish or remodel bid under-prices it, and the contractor usually absorbs the difference. The Kansas state rate is 6.5%, and local rates push combined rates higher depending on the jurisdiction.

This guide summarizes general rules for estimating. It is not tax advice. Kansas Department of Revenue Publication KS-1525 is the primary source, and specific situations should be confirmed with the department or a tax professional.

Rule 1: Contractors generally pay tax on materials

Kansas treats a contractor who installs materials into real property as the consumer of those materials. In practice:

• You pay sales tax to your supplier when you buy materials.
• If you buy materials from an out-of-state supplier without Kansas tax, you generally owe use tax.
• You do not charge your customer sales tax on the materials as a separate retail sale; the tax you paid is a cost built into your price.

In your estimate: include sales tax on materials at the rate you will actually pay, which depends on where the materials are delivered.

Rule 2: Original construction labor is generally exempt

Kansas exempts labor services for original construction. That generally includes:

• Construction of a new building or facility.
• Additions that expand an existing building.
• Rebuilding after damage from certain disasters, which Kansas includes in its definition of original construction. KS-1525 lists events such as fire, flood, tornado, lightning, explosion, windstorm and ice loading. Confirm the current list and conditions in the publication.

In your estimate: no sales tax on labor for these scopes, but still include tax on materials.

Rule 3: Remodel, repair and maintenance labor is generally taxable

Labor to remodel, repair, service or maintain existing property is generally taxable at the combined rate for the job location. That covers most tenant finish in existing buildings, kitchen and bath remodels, re-roofing that is not disaster rebuilding, and repairs.

In your estimate: add sales tax on labor for these scopes, and decide whether to state it separately or include it in the price.

Mixed projects

Many projects combine new construction and remodeling, such as an addition plus renovation of the existing building. Split the estimate so labor for each part is treated correctly, and keep that split in your contract and invoicing.

Rule 4: Project Exemption Certificates

Kansas allows certain exempt entities, including school districts, cities and counties, educational institutions and specified nonprofit organizations such as certain hospitals, to obtain a Project Exemption Certificate (PEC) for a specific project. According to the Kansas Department of Revenue, a PEC exempts the entire project, including materials, supplies, equipment rental and labor services.

Critical timing points:

• The exempt entity applies; the department issues the certificate for the specific project.
• Only purchases made on or after the certificate's effective date can be exempt. Materials bought before the PEC is issued are taxable.
• Contractors and subcontractors use copies of the PEC with suppliers.

In your estimate: price the project tax-exempt only when the bid documents confirm a PEC will be issued, and note the assumption in your clarifications. See public works bid estimating.

Rule 5: Subcontractor labor and resale

A Kansas private letter ruling explains that contractor labor on real property cannot be purchased for resale. Each contractor is responsible for collecting and remitting tax on its own taxable labor. Coordinate with your subs so tax is neither double-counted nor missed.

Rule 6: State the tax in your bid

When tax on taxable labor is not separately stated, Kansas guidance indicates the contract or invoice should include the statement "ALL APPLICABLE SALES TAXES ARE INCLUDED." Without it, the department may presume that tax was not collected from the customer. Build the language into your proposal templates.

Estimating checklist

1. Classify each scope as original construction, remodel or repair.
2. Confirm whether the owner is an exempt entity and whether a PEC will be issued.
3. Look up the combined rate for the job address using the department's rate locator.
4. Apply tax to materials at the delivery-location rate.
5. Apply tax to taxable labor at the job-location rate.
6. Coordinate tax responsibilities with subcontractors.
7. Add the tax statement to your proposal and invoices.

Our construction cost estimates handle these steps on every Kansas project. For storm rebuilding work, see storm damage estimating.