Do nonprofit associations that support member colleges qualify as exempt 'educational institutions' under the 1998 Kansas definition?

Plain-English summary

An attorney asked, on behalf of two nonprofit associations, whether they qualify as "educational institutions" under K.S.A. 79-3602 as amended by the 1998 Legislature (L. 1998, ch. 130, section 29). One is a 501(c)(4) association that represents accredited not-for-profit colleges in Kansas and provides them shared services; the other is a 501(c)(3) association whose sole purpose is to receive contributions and distribute them to seventeen fully accredited not-for-profit member institutions.

The 1998 definition. The Department explained that "K.S.A. 79-3602, as amended by the 1998 Kansas Legislature, defines the term 'educational institution,'" and that the term includes "[n]onprofit 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."

The holding. "Based solely on the information supplied by you, it is the opinion of the Kansas Department of Revenue that the [associations] qualify as 'educational institutions.'"

Bottom line: the associations that support and benefit their member colleges fall within the 1998-broadened definition of "educational institution," so they are treated as educational institutions — and thereby qualify for the exemption educational institutions enjoy on their purchases.

What this means for you

The 1998 amendment widened who is an "educational institution"

K.S.A. 79-3602 now includes nonprofit endowment associations and foundations that exist exclusively to hold and administer a permanent fund for the sole benefit of an educational institution. Support organizations, not just schools themselves, can qualify.

"Sole benefit of an educational institution" is the touchstone

The qualifying entities operate for the support and sole benefit of educational institutions. An organization channeling contributions to accredited member colleges fits that description.

Qualifying brings the educational-institution purchase exemption

Being an "educational institution" under 79-3602 makes an organization exempt on its purchases, the same treatment schools and colleges receive.

The determination rests on the facts presented

The Department qualified its opinion as based "solely on the information supplied." An organization relying on this treatment should ensure its actual structure and operations match what it represented.

Common questions

Q: Can a support association — not a school itself — be an "educational institution"?
A: Yes. The 1998 definition in K.S.A. 79-3602 includes nonprofit endowment associations and foundations operating exclusively for the sole benefit of an educational institution.

Q: Did these associations qualify?
A: Yes. The Department concluded, based on the information provided, that the associations qualify as "educational institutions."

Q: What is the benefit of qualifying?
A: An educational institution is exempt from Kansas sales tax on its purchases.

Q: Does the exemption depend on the associations' federal tax classification?
A: The determination turned on the Kansas statutory definition of "educational institution," not solely on federal 501(c)(3) or 501(c)(4) status.

Citations and references

• K.S.A. 79-3602 (as amended by L. 1998, ch. 130, section 29) — defines "educational institution" to include nonprofit endowment associations and foundations organized and operated exclusively to hold and administer a permanent fund for the support and sole benefit of an educational institution.
• Kansas educational-institution purchase exemption — an entity qualifying as an "educational institution" is exempt from Kansas sales tax on its purchases.
• K.A.R. 92-19-59 — the regulation authorizing private letter rulings; this ruling was issued under it and binds the Department only as to the requesting taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-190

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 18, 1998

XXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated November 2, 1998.

You represent the above captioned non-profit associations and request an opinion from the Kansas Department of Revenue as to whether or not these entities qualify as “educational institutions” pursuant to K.S.A. 79-3602 as amended by L. 1998, ch. 130, section 29.

You conveyed the following information regarding your clients.

XXXXXXXXXXXXXXXXXXXXXXX is a non-profit IRC 501(c)(4) association which represents the XXXXXXXX accredited not-for-profit colleges in Kansas. The association is supported by membership dues and provides a variety of services and functions for the mutual benefit of the member institutions. Such services include: publishing, public relations, government relations, education programs, tax exempt bond program, and legal representation.

XXXXXXXXXXXXXXXXXXXXX is a IRC 501(c)(3) association whose sole purpose is to receive contributions from corporations and individuals related to corporations and distribute same to the seventeen fully accredited not-for-profit member institutions.

K.S.A. 79-3602, as amended by the 1998 Kansas Legislature, defines the term “educational institution.” This term includes, “[n]onprofit 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.”

Based solely on the information supplied by you, it is the opinion of the Kansas Department of Revenue that the XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX qualify as “educational institutions.”

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

cc Mr. Robert Clelland

Date Composed: 12/08/1998 Date Modified: 10/10/2001

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