Feb 27, 2017
From KPMG TaxWatch
The Kentucky Claims Commission recently addressed whether a service provider’s purchases of paper were exempt as sales for resale so that it was entitled to a refund on earlier purchases and should not be assessed use tax for later years. The taxpayer provided various insurance-related services to several affiliated insurance companies in exchange for a fee, which was the cost of providing the services. The paper at issue was purchased by the taxpayer for use in printing “smart statements,” which was required under the taxpayer’s service agreements with the insurance affiliates. These smart statements, which were printed in Kentucky, provided the insurance affiliates’ members with a wide range of information on their insurance coverage and plans. The information was specific to each individual member. The taxpayer argued that the paper was purchased for resale because it was selling the printed smart statements to its affiliates’ members that received the statements in Kentucky and other states. As support for this position, the taxpayer calculated a cost of the smart statements, based largely on the printing costs, and remitted sales and use tax on the amount of the statements “sold” to Kentucky members.
The Claims Commission rejected the taxpayer’s position that it was selling the statements to Kentucky members. Under a Kentucky regulation, service providers are treated as consumers of tangible personal property used incidentally to provide services. In the Commission’s view, the insurance affiliates were paying for the taxpayer’s insurance-related services, not any tangible personal property provided to Kentucky members. The smart statements provided members a variety of information, advice and assistance (including legal, insurance and accounting services), and this information was the object or essence of these transactions. The situation was no different than when a bank provided a banking client with a bank statement or other financial document. The Commission also appeared to find it compelling that the taxpayer paid use tax on purchases of paper used to print checks for the payment of insurance claims. The Commission concluded that the taxpayer was considered the “consumer” of the paper and was liable for use tax on its purchases of paper that were used for the smart statements. Please contact Greg Ruud at 513-763-2463 with questions on Humana, Inc. v. Dep’t of Revenue.
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