Kansas imposes a statewide base sales tax rate of 6.5%, with an average combined rate of 8.75% when local taxes (where applicable) are factored in.
Businesses doing business in Kansas must be mindful of the state’s nexus rules, which require that businesses collect sales tax (on taxable sales) if they have a physical presence — such as an office, a warehouse, or employees — or if they exceed $100,000 in annual sales in the state.
A solid understanding of where SaaS is taxable is essential for businesses trying to stay on top of their compliance obligations. Operating in multiple states can make compliance challenging, as tax rules (including SaaS taxability) vary from state to state. But noncompliance can lead to penalties, so it’s important for businesses to stay informed and proactive.
Taxation rules in Kansas
Kansas’s approach to SaaS taxation is pretty straightforward: SaaS is generally not taxable, unlike traditional downloaded software, which is subject to sales tax in the state.
SaaS is typically hosted on remote servers and accessed through the internet, often on a subscription basis. People use the software without needing to download or install it locally.
While SaaS and most similar digital goods are not taxed in Kansas, there are some exceptions. For instance, streaming services, such as video subscriptions delivered over the internet, are taxed as television and radio subscriber services.
Similarly, downloaded video games are taxable under the category of prewritten computer software. Businesses dealing in these taxable categories (if they have nexus in the state) must collect and remit sales tax when making sales in Kansas.
Looking ahead, Kansas may revise its stance on digital goods and SaaS. Recent legislative discussions, such as those surrounding HB 2584, have proposed changes that could tax digital goods and services. While this particular piece of legislation died in committee, similar laws may pass in the future.
While Kansas doesn’t tax SaaS, you still need to think about compliance
Kansas doesn’t tax SaaS, but other states take a different approach. And many states are currently expanding their sales tax laws to include SaaS and other digital goods.
For instance, South Dakota explicitly taxes SaaS, creating obligations for businesses that sell into the state. Companies operating across state lines must navigate these varying rules to avoid penalties, which can arise from overlooked tax obligations in jurisdictions with different policies.
Understanding how nexus works in Kansas is a key part of managing compliance for SaaS businesses. “Nexus” refers to the connection a company has with a state. Reaching a certain nexus threshold triggers the requirement to collect and remit sales tax.
In Kansas, nexus is established in two primary ways:
- Physical nexus: A physical presence, such as a store, an office, or a warehouse
- Economic nexus: Exceeding $100,000 in sales within a calendar year
Other states have different nexus thresholds, creating additional challenges for businesses — some states set economic thresholds based on transaction counts, while others may impose tax obligations based on remote employee locations. These complexities make it important to monitor where your business has connections that could result in sales tax obligations.
Staying informed about nexus laws across all 50 states helps SaaS businesses maintain compliance and avoid costly surprises. Proactive planning and the use of tax tools or professional advice can simplify this process, allowing businesses to focus on growth without unnecessary tax-related stress.
Staying compliant nationwide
Accurately collecting and remitting sales tax is necessary for SaaS businesses operating in states where SaaS is taxable. Missteps can lead to penalties, including fines or audits, which can disrupt operations and harm a company’s reputation.
Maintaining compliance requires consistent attention to state-specific rules and timely action to meet reporting and payment deadlines.
Steps to staying compliant in Kansas
Staying compliant with Kansas sales tax regulations involves a few straightforward but important steps. Here’s how you can navigate the process:
- Register: First, apply for a sales tax permit through the Kansas Department of Revenue’s (KDOR’s) Customer Service Center. Kansas requires businesses that have nexus in the state, such as a physical location or more than $100,000 in annual sales, to register before they begin collecting sales tax.
- Collect: Once registered, you’re ready to collect sales tax on applicable transactions. While SaaS isn’t currently taxable in Kansas, other digital goods — such as downloaded video games and traditional software — are. Kansas has a statewide base sales tax rate of 6.5%, and local jurisdictions can add their own rates, resulting in an average combined rate of 8.75%. It’s important to apply the correct rate based on the customer’s location.
- File: Filing sales tax returns in Kansas is typically required on a monthly, quarterly, or annual basis, depending on the volume of your taxable sales. You can easily file online through the KDOR portal, where you’ll report your total sales, taxable sales, and the amount of tax collected. Make sure to check your assigned filing frequency, as late submissions can lead to penalties.
- Remit: Along with filing your return, you’ll need to remit the collected sales tax to the state. Payments can be made online through the same KDOR portal. Kansas has strict deadlines, so setting reminders for due dates can help avoid unnecessary fees.
Even if SaaS isn’t taxable now, registering and following these steps will prepare your business for any future changes, such as the previously proposed HB 2584 legislation. Using tax compliance tools like Numeral can also simplify these tasks — Numeral automates calculations and tracks obligations across states, so you can focus on growing your business.
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Additional resources for staying compliant
For businesses navigating Kansas tax laws, the Kansas Department of Revenue (KDOR) offers a range of resources to assist with compliance:
- Official website: The KDOR website provides comprehensive information on tax rates, regulations, and compliance requirements.
- Sales tax guide: KDOR's Publication KS-1510 offers detailed guidance on sales and compensating use tax, including specifics on taxable and non-taxable goods and services.
- Electronic services: Through the KDOR Customer Service Center, businesses can register for permits, file returns, and make payments online, streamlining the compliance process.
For personalized assistance, KDOR provides direct support:
- Tax assistance hotline: For tax or refund questions, call 1-(785)-368-8222 to speak with a representative who can provide guidance on your specific situation.
- Email support: Requests for detailed information or clarification on tax matters can be directed to kdor_tac@ks.gov.
- Taxpayer assistance centers: For additional assistance, KDOR operates Taxpayer Assistance Centers — in Topeka, Overland Park, and Wichita — where businesses can receive in-person support.
In addition to these official resources, consulting with a tax professional is also advisable for tailored advice, especially when dealing with complex tax scenarios or multi-state operations.
Final thoughts
While Kansas exempts SaaS from taxation, other digital goods, such as downloaded software and streaming services, may be taxed. Staying informed about these distinctions helps businesses avoid compliance missteps.
Tax laws can change over time, so it’s important to keep up with any updates or changes that may occur. Regularly reviewing Kansas tax policies ensures that businesses stay prepared for any shifts that might affect operations.
For businesses managing sales in multiple states, a sales tax solution like Numeral can simplify compliance, automate many tax-related tasks, and reduce the risk of errors. For businesses of any size, engaging in proactive compliance strategies allows them to focus on growth while confidently meeting their tax obligations.
