Is a nonprofit 501(c)(3) science-education organization exempt from Kansas sales tax on its purchases?

Plain-English summary

A nonprofit organization exempt from federal income tax under IRC § 501(c)(3), organized to promote education and interest in science and closely associated with the State of Kansas since 1867, asked whether it qualifies for exemption from Kansas sales tax.

No statutory exemption fits. The Department reviewed the sales tax exemptions in K.S.A. 79-3606 and "could find no subsection in K.S.A. 79-3606 that could be read as exempting the [organization]'s purchases."

Exemptions are strictly construed. The ruling grounds that conclusion in Kansas law: "sales tax exemption statutes are strictly construed in favor of imposing tax and against exemption" (In re Atchison, Topeka & Santa Fe Ry Co., 17 Kan. App. 2d 794 (1993)), and such statutes "will not be extended by implication and should not be read to include things that are not readily found within their plain terms" (Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984)).

The Legislature had already said no. The Department noted that bills to exempt the organization had been introduced and rejected — 1993 Senate Bill No. 385 (which would have exempted subscriptions to publications of 501(c)(3) organizations) and 1997 House Bill No. 2107 (which would have specifically exempted sales to the organization) — and neither was enacted. Given that history, "it would be inappropriate for the department to create an exemption by administrative regulation or by administrative fiat." Whether to extend the exemption is "[a] political decision for the Kansas legislature."

Bottom line: the organization is not exempt. The Department even recommended that if it seeks exemption, it pursue legislation modeled on 1997 HB 2107, which would exempt purchases of publication materials — better suited to an organization that provides publications to its members as part of membership.

What this means for you

Federal 501(c)(3) status does not create a Kansas exemption

Being a federally tax-exempt nonprofit — even a venerable, state-affiliated one — does not by itself exempt an organization from Kansas sales tax. There must be a specific Kansas exemption that fits.

Strict construction is the governing rule

Kansas courts read sales tax exemptions narrowly, against the taxpayer. If the organization's purchases are not "readily found within [the] plain terms" of an exemption subsection, the Department will not stretch the statute to cover them.

Legislative rejection matters

When the Legislature has considered and declined to enact an exemption, the Department will not create one administratively. That history actively cut against the taxpayer here.

The remedy is legislative

The Department pointed the organization to the Legislature and even suggested statutory language (from 1997 HB 2107) that would exempt purchases of publication materials. Organizations in this position should direct their efforts to lawmakers, not to the Department.

Common questions

We're a 501(c)(3) — doesn't that make us exempt from Kansas sales tax?
No. Federal income-tax exemption is separate from Kansas sales tax. You need a specific Kansas exemption in K.S.A. 79-3606 (or elsewhere) that applies to your purchases.

Why did the Department say no?
Because no subsection of K.S.A. 79-3606 covers the organization, and Kansas exemptions are strictly construed and not extended by implication.

Did it matter that exemption bills had failed?
Yes. The Legislature's rejection of prior exemption bills made it inappropriate for the Department to create the exemption administratively.

How could the organization become exempt?
By obtaining a statutory exemption from the Legislature. The Department suggested using language like 1997 HB 2107, which would exempt purchases of publication materials.

Citations and references

• K.S.A. 79-3606 — the list of Kansas sales tax exemptions; the Department found no subsection that exempts the organization's purchases.
• In re Atchison, Topeka & Santa Fe Ry Co., 17 Kan. App. 2d 794 (1993) — sales tax exemption statutes are strictly construed in favor of imposing tax and against exemption.
• Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984) — exemption statutes are not extended by implication and are limited to their plain terms.
• 1993 Senate Bill No. 385 and 1997 House Bill No. 2107 — proposed (and unenacted) exemptions referenced by the Department.
• 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 October 14, 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-1998-174

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 14, 1998

XXXX
XXXX
XXXX

RE: Your Letter of August 31, 1998

Dear XXXX:

I have been asked to respond to your letter of August 31, 1998. You request a private letter ruling that determines whether the XXXX qualifies for exemption from Kansas sales tax. The XXXX is a nonprofit organization that is exempt from federal income tax pursuant to IRC Sec. 501(c)(3). It is organized to promote education and interest in science. You letter is accompanied by history of the XXXX, which shows a close association between the State of Kansas and the XXXX since its inception in 1867. Many of its officers and editors are science professors at state universities.

I have reviewed the materials that you provided in light of the sales tax exemptions extended in K.S.A. 79-3606. I could find no subsection in K.S.A. 79-3606 that could be read as exempting the XXXX’s purchases. Under Kansas law, sales tax exemption statutes are strictly construed in favor of imposing tax and against exemption. In re Atchison, Topeka & Santa Fe Ry Co., 17 Kan. App. 2d 794 (1993). It is a fundamental rule of statutory construction that sales tax exemption statutes will not be extended by implication and should not be read to include things that are not readily found within their plain terms. Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984).

In addition to my review, several bills have been introduced before the Kansas legislature to exempt the XXXX from sales tax. These include 1993 Senate Bill No. 385, which would have exempted all sales of subscriptions to publications of organizations that are exempt under IRC Sec. 501(c)(3), and 1997 House Bill No.2107, which would have specifically exempted sales to the XXXX. Neither of these bills was enacted into law.

Because of the legislature’s rejection of these bills it would be inappropriate for the department to create an exemption by administrative regulation or by administrative fiat. Whether exemption should be extended to the XXXX is political decision for the Kansas legislature. I recommend that if you do seek exemption from the legislature, that you use the language contained in 1997 HB 2107, since it is more appropriate for the XXXX’s needs. It provides exemption for purchases of publications materials rather than exemption for sales to members. This is appropriate since the XXXX provides the publications to its members as part of their membership.

Please note that XXXX has been very helpful to me in reviewing this matter. I hope that the XXXX is helped by this determination that any exemption for the XXXX lies with the Kansas legislature and that you can channel your efforts to that end.

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. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination. Please call me if you have any additional questions. My number is (785) 296-4008.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 11/04/1998 Date Modified: 10/10/2001

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