United States

Kansas: Use Tax Statute Ambiguous; Taxpayer Must Own Property to Owe Use Tax

Jan 08, 2018
From KPMG TaxWatch

Loading the player...

The Kansas Supreme Court recently addressed whether a casino owed use tax on electronic gaming machines that it did not own and could not own. Under Kansas law, the casino was expressly prohibited from “owning, purchasing, or leasing any Lottery Facility Games, except on behalf of the State of Kansas and through the Kansas Lottery.” Although the casino purchased the electronic gaming machines outside of Kansas and paid Kansas use tax on the machines, the actual owner of the machines was the Kansas Lottery. The casino filed use tax refunds, which were denied by the Department of Revenue. The taxpayer appealed to the Board of Tax Appeals and an appeals court, both of which ruled in favor of the taxpayer. The Department subsequently appealed to the Kansas Supreme Court.

Under Kansas law, use tax is imposed on persons for the privilege “of using, storing, or consuming within [Kansas] any article of tangible personal property.”  ”Use" is defined, in part, as the exercise within Kansas “by any person of any right or power over tangible personal property incident to the ownership of that property.” The court noted that the imposition statute was silent on whether the person using the property must be the owner of that property. The definition of “use” likewise appeared to simply require use by any person, not just the owner. However, the last part of that definition required that the right or power exercised over the property be incidental to the ownership of that property. The court concluded that because reasonable minds could differ on the interpretation of the relevant statutes, the language was ambiguous and therefore must be resolved in favor of the taxpayer. The court thus held that for the state to require the taxpayer to pay use tax (1) the taxpayer must be the owner of the property and (2) must exercise a right or power incident to that ownership within Kansas. The casino met neither of these conditions. Accordingly, it was not subject to use tax on the purchases of electronic gaming machines. Please contact Harley Duncan at 202-533-3254 with questions on In the Matter of the Appeal of BHCMC, L.L.C.


For more information about TWIST or to view archived episodes, please visit our TWIST homepage.

 Subscribe to TWIST via iTunes, or  Subscribe via RSS.

To receive TWIST e-mails each Monday morning, make sure that state, local and indirect is checked off as one of your topics of interest on the KPMG TaxWatch registration site.


The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.