Bill Summary – FastDemocracy

Special Session of 2020
                               HOUSE BILL No. 2013
                                 By Representative Hodge
                                           6-3

 AN ACT concerning sales and compensating use taxation; relating to rates;
   food and food ingredients; disposition of revenue; amending K.S.A. 79-
   3602, 79-3603, as amended by section 13 of 2020 Senate Bill No. 173,
   79-3620, 79-3703, as amended by section 14 of 2020 Senate Bill No.
   173, and 79-3710 and repealing the existing sections.
 6
 Be it enacted by the Legislature of the State of Kansas:
     New Section 1. (a) There is hereby levied and there shall be collected
 and paid a tax upon the gross receipts from the sale of food and food
 ingredients. The rate of tax shall be 3.25%.
     (b) The provisions of this section shall not apply to prepared food,
 unless sold without eating utensils provided by the seller and described
 below:
     (1) Food sold by a seller whose proper primary NAICS classification
 is manufacturing in sector 311, except bakeries in subsector 3118;
     (2) (A) food sold in an unheated state by weight or volume as a single
 item; or
     (B) only meat or seafood sold in an unheated state by weight or
 volume as a single item;
     (3) bakery items, including, but not limited to, bread, rolls, buns,
 biscuits, bagels, croissants, pastries, donuts, danish, cakes, tortes, pies,
 tarts, muffins, bars, cookies and tortillas;
     (4) food sold that ordinarily requires additional cooking, as opposed
 to just reheating, by the consumer prior to consumption; or
     (5) bottled water that is not otherwise sold as prepared food.
     (c) The provisions of this section shall be a part of and supplemental
 to the Kansas retailers' sales tax act.
     Sec. 2. K.S.A. 79-3602 is hereby amended to read as follows: 79-
 3602. Except as otherwise provided, as used in the Kansas retailers' sales
 tax act:
     (a) "Agent" means a person appointed by a seller to represent the
 seller before the member states.
     (b) "Agreement" means the multistate agreement entitled the
 streamlined sales and use tax agreement approved by the streamlined sales
 tax implementing states at Chicago, Illinois on November 12, 2002.
     (c) "Alcoholic beverages" means beverages that are suitable for
     HB 2013                              2
 human consumption and contain 0.05% or more of alcohol by volume.
    (d) "Certified automated system (CAS)" means software certified
 under the agreement to calculate the tax imposed by each jurisdiction on a
 transaction, determine the amount of tax to remit to the appropriate state
 and maintain a record of the transaction.
    (e) "Certified service provider (CSP)" means an agent certified under
 the agreement to perform all the seller's sales and use tax functions, other
 than the seller's obligation to remit tax on its own purchases.
    (f) "Computer" means an electronic device that accepts information
 in digital or similar form and manipulates it for a result based on a
 sequence of instructions.
    (g) "Computer software" means a set of coded instructions designed
 to cause a computer or automatic data processing equipment to perform a
 task.
    (h) "Delivered electronically" means delivered to the purchaser by
 means other than tangible storage media.
    (i) "Delivery charges" means charges by the seller of personal
 property or services for preparation and delivery to a location designated
 by the purchaser of personal property or services including, but not limited
 to, transportation, shipping, postage, handling, crating and packing.
 Delivery charges shall not include charges for delivery of direct mail if the
 charges are separately stated on an invoice or similar billing document
 given to the purchaser.
    (j) "Direct mail" means printed material delivered or distributed by
 United States mail or other delivery services to a mass audience or to
 addressees on a mailing list provided by the purchaser or at the direction of
 the purchaser when the cost of the items are not billed directly to the
 recipients. Direct mail includes tangible personal property supplied
 directly or indirectly by the purchaser to the direct mail seller for inclusion
 in the package containing the printed material. Direct mail does not
 include multiple items of printed material delivered to a single address.
    (k) "Director" means the state director of taxation.
    (l) "Educational institution" means any nonprofit school, college and
 university that offers education at a level above the 12th grade, and
 conducts regular classes and courses of study required for accreditation by,
 or membership in, the higher learning commission, the state board of
 education, or that otherwise qualify as an "educational institution," as
 defined by K.S.A. 74-50,103, and amendments thereto. Such phrase shall
 include: (1) A group of educational institutions that operates exclusively
 for an educational purpose; (2) nonprofit endowment associations and
 foundations organized and operated exclusively to receive, hold, invest
 and administer moneys and property as a permanent fund for the support
 and sole benefit of an educational institution; (3) nonprofit trusts,
     HB 2013                              3
 foundations and other entities organized and operated principally to hold
 and own receipts from intercollegiate sporting events and to disburse such
 receipts, as well as grants and gifts, in the interest of collegiate and
 intercollegiate athletic programs for the support and sole benefit of an
 educational institution; and (4) nonprofit trusts, foundations and other
 entities organized and operated for the primary purpose of encouraging,
 fostering and conducting scholarly investigations and industrial and other
 types of research for the support and sole benefit of an educational
 institution.
     (m) "Electronic" means relating to technology having electrical,
 digital, magnetic, wireless, optical, electromagnetic or similar capabilities.
     (n) "Food and food ingredients" means substances, whether in liquid,
 concentrated, solid, frozen, dried or dehydrated form, that are sold for
 ingestion or chewing by humans and are consumed for their taste or
 nutritional value. "Food and food ingredients" does include bottled water,
 candy, food sold through vending machines or soft drinks. "Food and food
 ingredients" does not include alcoholic beverages, dietary supplements or
 tobacco.
     (o) "Gross receipts" means the total selling price or the amount
 received as defined in this act, in money, credits, property or other
 consideration valued in money from sales at retail within this state; and
 embraced within the provisions of this act. The taxpayer, may take credit
 in the report of gross receipts for: (1) An amount equal to the selling price
 of property returned by the purchaser when the full sale price thereof,
 including the tax collected, is refunded in cash or by credit; and (2) an
 amount equal to the allowance given for the trade-in of property.
     (p) "Ingredient or component part" means tangible personal property
 which is necessary or essential to, and which is actually used in and
 becomes an integral and material part of tangible personal property or
 services produced, manufactured or compounded for sale by the producer,
 manufacturer or compounder in its regular course of business. The
 following items of tangible personal property are hereby declared to be
 ingredients or component parts, but the listing of such property shall not be
 deemed to be exclusive nor shall such listing be construed to be a
 restriction upon, or an indication of, the type or types of property to be
 included within the definition of "ingredient or component part" as herein
 set forth:
     (1) Containers, labels and shipping cases used in the distribution of
 property produced, manufactured or compounded for sale which are not to
 be returned to the producer, manufacturer or compounder for reuse.
     (2) Containers, labels, shipping cases, paper bags, drinking straws,
 paper plates, paper cups, twine and wrapping paper used in the distribution
 and sale of property taxable under the provisions of this act by wholesalers
     HB 2013                             4
 and retailers and which is not to be returned to such wholesaler or retailer
 for reuse.
     (3) Seeds and seedlings for the production of plants and plant
 products produced for resale.
     (4) Paper and ink used in the publication of newspapers.
     (5) Fertilizer used in the production of plants and plant products
 produced for resale.
     (6) Feed for animals, fowl and aquatic plants and animals, the
 primary purpose of which is use in agriculture or aquaculture, as defined in
 K.S.A. 47-1901, and amendments thereto, the production of food for
 human consumption, the production of animal, dairy, poultry or aquatic
 plant and animal products, fiber, fur, or the production of offspring for use
 for any such purpose or purposes.
     (q) "Isolated or occasional sale" means the nonrecurring sale of
 tangible personal property, or services taxable hereunder by a person not
 engaged at the time of such sale in the business of selling such property or
 services. Any religious organization which makes a nonrecurring sale of
 tangible personal property acquired for the purpose of resale shall be
 deemed to be not engaged at the time of such sale in the business of selling
 such property. Such term shall include: (1) Any sale by a bank, savings and
 loan institution, credit union or any finance company licensed under the
 provisions of the Kansas uniform consumer credit code of tangible
 personal property which has been repossessed by any such entity; and (2)
 any sale of tangible personal property made by an auctioneer or agent on
 behalf of not more than two principals or households if such sale is
 nonrecurring and any such principal or household is not engaged at the
 time of such sale in the business of selling tangible personal property.
     (r) "Lease or rental" means any transfer of possession or control of
 tangible personal property for a fixed or indeterminate term for
 consideration. A lease or rental may include future options to purchase or
 extend.
     (1) Lease or rental does not include: (A) A transfer of possession or
 control of property under a security agreement or deferred payment plan
 that requires the transfer of title upon completion of the required
 payments;
     (B) a transfer or possession or control of property under an agreement
 that requires the transfer of title upon completion of required payments and
 payment of an option price does not exceed the greater of $100 or 1% of
 the total required payments; or
     (C) providing tangible personal property along with an operator for a
 fixed or indeterminate period of time. A condition of this exclusion is that
 the operator is necessary for the equipment to perform as designed. For the
 purpose of this subsection, an operator must do more than maintain,
     HB 2013                              5
 inspect or set-up the tangible personal property.
     (2) Lease or rental does include agreements covering motor vehicles
 and trailers where the amount of consideration may be increased or
 decreased by reference to the amount realized upon sale or disposition of
 the property as defined in 26 U.S.C. § 7701(h)(1).
     (3) This definition shall be used for sales and use tax purposes
 regardless if a transaction is characterized as a lease or rental under
 generally accepted accounting principles, the internal revenue code, the
 uniform commercial code, K.S.A. 84-1-101 et seq., and amendments
 thereto, or other provisions of federal, state or local law.
     (4) This definition will be applied only prospectively from the
 effective date of this act and will have no retroactive impact on existing
 leases or rentals.
     (s) "Load and leave" means delivery to the purchaser by use of a
 tangible storage media where the tangible storage media is not physically
 transferred to the purchaser.
     (t) "Member state" means a state that has entered in the agreement,
 pursuant to provisions of article VIII of the agreement.
     (u) "Model 1 seller" means a seller that has selected a CSP as its
 agent to perform all the seller's sales and use tax functions, other than the
 seller's obligation to remit tax on its own purchases.
     (v) "Model 2 seller" means a seller that has selected a CAS to
 perform part of its sales and use tax functions, but retains responsibility for
 remitting the tax.
     (w) "Model 3 seller" means a seller that has sales in at least five
 member states, has total annual sales revenue of at least $500,000,000, has
 a proprietary system that calculates the amount of tax due each jurisdiction
 and has entered into a performance agreement with the member states that
 establishes a tax performance standard for the seller. As used in this
 subsection a seller includes an affiliated group of sellers using the same
 proprietary system.
     (x) "Municipal corporation" means any city incorporated under the
 laws of Kansas.
     (y) "Nonprofit blood bank" means any nonprofit place, organization,
 institution or establishment that is operated wholly or in part for the
 purpose of obtaining, storing, processing, preparing for transfusing,
 furnishing, donating or distributing human blood or parts or fractions of
 single blood units or products derived from single blood units, whether or
 not any remuneration is paid therefor, or whether such procedures are done
 for direct therapeutic use or for storage for future use of such products.
     (z) "Persons" means any individual, firm, copartnership, joint
 adventure, association, corporation, estate or trust, receiver or trustee, or
 any group or combination acting as a unit, and the plural as well as the
     HB 2013                              6
 singular number; and shall specifically mean any city or other political
 subdivision of the state of Kansas engaging in a business or providing a
 service specifically taxable under the provisions of this act.
     (aa) "Political subdivision" means any municipality, agency or
 subdivision of the state which is, or shall hereafter be, authorized to levy
 taxes upon tangible property within the state or which certifies a levy to a
 municipality, agency or subdivision of the state which is, or shall hereafter
 be, authorized to levy taxes upon tangible property within the state. Such
 term also shall include any public building commission, housing, airport,
 port, metropolitan transit or similar authority established pursuant to law
 and the horsethief reservoir benefit district established pursuant to K.S.A.
 82a-2201, and amendments thereto.
     (bb) "Prescription" means an order, formula or recipe issued in any
 form of oral, written, electronic or other means of transmission by a duly
 licensed practitioner authorized by the laws of this state.
     (cc) "Prewritten computer software" means computer software,
 including prewritten upgrades, which is not designed and developed by the
 author or other creator to the specifications of a specific purchaser. The
 combining of two or more prewritten computer software programs or
 prewritten portions thereof does not cause the combination to be other than
 prewritten computer software. Prewritten computer software includes
 software designed and developed by the author or other creator to the
 specifications of a specific purchaser when it is sold to a person other than
 the purchaser. Where a person modifies or enhances computer software of
 which the person is not the author or creator, the person shall be deemed to
 be the author or creator only of such person's modifications or
 enhancements. Prewritten computer software or a prewritten portion
 thereof that is modified or enhanced to any degree, where such
 modification or enhancement is designed and developed to the
 specifications of a specific purchaser, remains prewritten computer
 software, except that where there is a reasonable, separately stated charge
 or an invoice or other statement of the price given to the purchaser for
 such modification or enhancement, such modification or enhancement
 shall not constitute prewritten computer software.
     (dd) "Property which is consumed" means tangible personal property
 which is essential or necessary to and which is used in the actual process
 of and consumed, depleted or dissipated within one year in: (1) The
 production, manufacture, processing, mining, drilling, refining or
 compounding of tangible personal property; (2) the providing of services;
 (3) the irrigation of crops, for sale in the regular course of business; or (4)
 the storage or processing of grain by a public grain warehouse or other
 grain storage facility, and which is not reusable for such purpose. The
 following is a listing of tangible personal property, included by way of
     HB 2013                              7
 illustration but not of limitation, which qualifies as property which is
 consumed:
     (A) Insecticides, herbicides, germicides, pesticides, fungicides,
 fumigants, antibiotics, biologicals, pharmaceuticals, vitamins and
 chemicals for use in commercial or ag