Is an educational institution that is exempt on its purchases also required to collect Kansas sales tax on its own sales?

Plain-English summary

An educational organization asked about its Kansas sales tax obligations, particularly for a benefit auction.

Educational institutions are exempt on their purchases. The Department explained that "[s]chools and educational institutions are exempt from paying sales tax on their purchases," and that "[t]he 1998 legislature defined an 'educational institution' to mean a nonprofit school, college, or university that offers educational courses at a level above the twelfth grade and meets certain requirements fixed by the statute." The new definition also reaches:

• "Nonprofit endowment associations and foundations that operate exclusively for the support and benefit of an educational institution";
• "Nonprofit entities whose principal purpose is to hold receipts from intercollegiate sporting events and to disburse these receipts, as well as grants and gifts, for the sole benefit of the athletic programs of an educational institution";
• "Nonprofit research organizations whose primary purpose is to pursue scholarly investigation and research for the sole benefit of an educational institution"; and
• "A group of educational institutions that operate exclusively for an educational purpose, such as the NCAA."

But the exemption does not extend to the institution's own sales. The Department advised that the organization "would still be obligated to collect the appropriate Kansas sales tax(es) on all their sales of tangible personal property and taxable services, which include, but not be limited to, the benefit auction, where you charge admission, and sell items which have been donated to you."

Bottom line: the institution's purchase-side exemption is one thing; when it sells taxable property or services — including a benefit auction with admission charges and sales of donated items — it must register, collect, and remit Kansas sales tax like any retailer.

What this means for you

Purchase exemption and collection duty are separate

An exemption on what an educational institution buys does not relieve it from collecting tax on what it sells. The two sides of the sales tax are analyzed independently.

The 1998 definition expanded who is an "educational institution"

Beyond schools, colleges, and universities above the twelfth grade, the exemption now reaches qualifying nonprofit endowment/foundation, athletic-receipt, and research entities operating for the sole benefit of an educational institution, and groups such as the NCAA.

A benefit auction is a taxable retail activity

Charging admission and selling donated items at a benefit auction are taxable sales of services and tangible personal property. The institution must collect and remit the tax on those receipts, even though the goods were donated.

Register and collect on taxable sales

An educational institution that makes taxable retail sales needs to be registered to collect Kansas sales tax and remit what it collects, regardless of its exempt status as a purchaser.

Common questions

Q: Is an educational institution exempt from Kansas sales tax?
A: On its purchases, yes — schools and qualifying educational institutions are exempt from paying sales tax on what they buy.

Q: Does that exemption cover the institution's own sales?
A: No. It must still collect the appropriate Kansas sales tax on its sales of tangible personal property and taxable services.

Q: Is a benefit auction taxable?
A: Yes. The Department said the institution must collect tax on the benefit auction, including admission charges and sales of donated items.

Q: Who counts as an "educational institution" after the 1998 change?
A: Nonprofit schools/colleges/universities above the twelfth grade, plus qualifying endowment/foundation, intercollegiate-athletic-receipt, and research entities for the sole benefit of an educational institution, and groups such as the NCAA.

Citations and references

• Kansas educational-institution exemption (as broadened by the 1998 legislature) — exempts qualifying schools and educational institutions from paying sales tax on their purchases and expands the definition to certain nonprofit endowment, athletic-receipt, and research entities and groups such as the NCAA; the ruling described this without citing a specific statutory subsection.
• Kansas retailers' sales tax collection duty — an exempt institution must still collect and remit tax on its own sales of tangible personal property and taxable services, such as a benefit auction with admission and sales of donated items.
• 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-1998-209

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 11, 1998

TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT

Dear Ms. TTTTTTT:

We wish to acknowledge receipt of your letter dated November 11, 1998, regarding the application of Kansas Retailers’ Sales tax.

Schools and educational institutions are exempt from paying sales tax on their purchases. The 1998 legislature defined an "educational institution" to mean a nonprofit school, college, or university that offers educational courses at a level above the twelfth grade and meets certain requirements fixed by the statute. This new definition also includes:

Nonprofit endowment associations and foundations that operate exclusively for the support and benefit of an educational institution;
Nonprofit entities whose principal purpose is to hold receipts from intercollegiate sporting events and to disburse these receipts, as well as grants and gifts, for the sole benefit of the athletic programs of an educational institution;
Nonprofit research organizations whose primary purpose is to pursue scholarly investigation and research for the sole benefit of an educational institution; and
A group of educational institutions that operate exclusively for an educational purpose, such as the NCAA.

Please be advised that the TTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT, would still be obligated to collect the appropriate Kansas sales tax(es) on all their sales of tangible personal property and taxable services, which include, but not be limited to, the benefit auction, where you charge admission, and sell items which have been donated to you.

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 in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 12/14/1998 Date Modified: 10/10/2001

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