Does a 501(c)(3) nonprofit automatically get a Kansas sales tax exemption on its purchases?

Plain-English summary

A nonprofit "Center" asked for a ruling recognizing it as exempt from Kansas sales tax, providing its mission statement and an IRS letter recognizing it as exempt from income tax under section 501(c)(3).

Kansas has no general nonprofit exemption. "Unlike many states, Kansas does not extend a general sales tax exemption to not-for-profit organizations. Accordingly, to be exempt, the Center must fall within one of the conceptual exemptions in K.S.A. 79-3606 or be one of the organizations listed therein as exempt."

Nothing in the statute fit. "I have reviewed K.S.A. 79-3606 and can find nothing that exempts the Center," the Department wrote, enclosing a copy of the statute and inviting the Center to point out any provision it believed applied.

Not an "educational institution" either. The Department quoted the Legislature's new definition of "educational institution" for K.S.A. 79-3606(b) and (c) — accredited colleges and universities, certain schools above the twelfth grade, and adjunct endowment, athletic-receipt, and research entities that support an educational institution — and concluded that "[t]he Center does not fit into any of these categories."

Request denied. "Accordingly, I am denying your ruling request. The Center must pay Kansas sales tax on all of its purchases in Kansas."

Bottom line: federal 501(c)(3) status does not by itself create a Kansas sales tax exemption. Because Kansas has no general nonprofit exemption and the Center matched none of the specific categories in K.S.A. 79-3606, it must pay sales tax on its purchases.

What this means for you

501(c)(3) status is not a Kansas exemption

Being recognized as a federal income-tax-exempt charity does not make an organization exempt from Kansas sales tax. Kansas grants sales tax exemptions only to the specific categories listed in K.S.A. 79-3606.

There is no general "nonprofit" exemption in Kansas

Unlike some states, Kansas does not exempt not-for-profit organizations as a class. An organization must match a specific statutory exemption or one of the listed organizations to buy tax-free.

The "educational institution" definition is specific

The category covers accredited colleges and universities, certain schools above the twelfth grade, and defined adjunct entities (endowment associations, athletic-receipt entities, and research foundations) that support an educational institution. A general nonprofit that is not one of these does not qualify.

If no category fits, the purchases are taxable

When an organization matches none of the exemptions, the Department denies the request and the organization pays Kansas sales tax on all of its purchases.

Common questions

Is a 501(c)(3) nonprofit exempt from Kansas sales tax?
Not automatically. Kansas has no general nonprofit exemption; the organization must fit a specific exemption in K.S.A. 79-3606.

Why was this center denied?
The Department reviewed K.S.A. 79-3606 and found nothing that exempted the center — it did not fit the "educational institution" definition or any other listed category.

What does "educational institution" cover?
Accredited colleges and universities, certain schools above the twelfth grade, and defined endowment, athletic-receipt, and research entities organized for the support and sole benefit of an educational institution.

What happens if no exemption applies?
The organization must pay Kansas sales tax on all of its purchases in Kansas.

Citations and references

• K.S.A. 79-3606 — Kansas grants sales tax exemptions only to the specific conceptual exemptions and organizations listed in this statute; there is no general nonprofit exemption, and the Department found none that fit the center.
• K.S.A. 79-3606(b) and (c) — the provisions for which the Legislature defined "educational institution" (accredited colleges/universities, certain schools above the twelfth grade, and defined adjunct endowment, athletic-receipt, and research entities); the center fit none of these categories.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued August 31, 1998 by Thomas E. Hatten, Attorney, Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-110

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 31, 1998

XXXX
XXXX
XXXX

RE: Your letter of August 19, 1998

Dear XXXX:

I have been asked to respond to your letter of August 19, 1998. In it, you ask for a private letter ruling that recognizes the XXXX (“the Center”) is exempt from payment of Kansas sales tax. You provided a mission statement for the Center and correspondence from the IRS with your letter. The IRS letter recognizes that the Center is exempt for income tax purposes under IRS Sec. 501(c)(3).

Unlike many states, Kansas does not extend a general sales tax exemption to not-for-profit organizations. Accordingly, to be exempt, the Center must fall within one of the conceptual exemptions in K.S.A. 79-3606 or be one of the organizations listed therein as exempt.

I have reviewed K.S.A. 79-3606 and can find nothing that exempts the Center. I have enclosed a copy of K.S.A. 79-3606 for you to review. Please let me know if there is an exemption provision that you feel applies to the Center.

In addition to these exemptions, the Kansas legislature recently defined the term “educational institution” for purposes of K.S.A. 79-3606(b) and K.S.A. 79-3606(c). This definition provides:

(s) “Educational institution'” means any nonprofit school, college and university that offers education at a level above the twelfth grade, and conducts regular classes and courses of study required for accreditation by, or membership in, the North Central Association of Colleges and Schools, 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) non-profit 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, 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.

This definition shows that the term “educational institutions” includes accredited colleges and universities, certain other schools above the twelfth grade, and certain corporations and foundations that serve as adjuncts to colleges and universities. The Center does not fit into any of these categories. Accordingly, I am denying your ruling request. The Center must pay Kansas sales tax on all of its purchases in Kansas.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. Please call me if you have any additional questions.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosure

Date Composed: 09/02/1998 Date Modified: 10/10/2001

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