Are purchases made from a state agency's Patient's Benefit, Work Therapy, and Canteen Funds exempt as direct purchases by the state?

Plain-English summary

A state institution asked whether purchases paid from several of its funds qualify as exempt direct purchases by the State of Kansas.

Certain agency funds are funds of the State. The Department concluded that "the following funds would be funds of the State of Kansas: Patient's Benefit Fund, Work Therapy Fund, and Canteen Fund established pursuant to K.S.A. 75-3728e." Because those Funds are state funds, "all direct purchase[s] by these Funds would be considered as direct purchases by the state," and "[d]irect purchases by the state are exempt from Kansas retailers' sales tax."

What counts as a direct purchase. The Department defined a direct purchase as "a sale of property or services that are billed directly to the exempt buyer and paid for by a check or voucher from the exempt buyer." It added that "[p]urchases made by agents or employees of an exempt buyer with their personal funds are taxable."

The employee use fund is different. Quoting K.S.A. 75-3080 — under which "[a]ny state agency may apply ... for the establishment of an employee use fund, which shall not be a part of the state treasury" — the Department opined that "purchases utilizing funds of the Employee use funds would not qualify for exemption from Kansas retailers' sales tax."

Bottom line: if a purchase is billed to and paid by check or voucher from one of these state Funds, it is an exempt direct purchase by the state; if it is paid from an employee use fund (outside the state treasury) or with an employee's personal money, it is taxable.

What this means for you

The exemption follows the money, and how it is paid

A governmental exemption turns on a genuine direct purchase: the state fund must be billed directly and pay directly by its own check or voucher. That paper trail is what makes the purchase exempt.

Employee-paid purchases are taxable even for reimbursement

When an employee pays with personal funds — even if later reimbursed — the transaction is a taxable purchase by the employee, not a direct purchase by the state.

Not every institutional "fund" is a state fund

The Patient's Benefit, Work Therapy, and Canteen Funds under K.S.A. 75-3728e are state funds and qualify. An "employee use fund" under K.S.A. 75-3080 is expressly "not ... part of the state treasury," so purchases from it do not get the state exemption.

Keep records tying each purchase to the paying fund

Because the answer depends on which fund pays and how, an agency should document that qualifying purchases were billed to and paid by an exempt state fund's own check or voucher.

Common questions

Q: Are purchases from the Patient's Benefit, Work Therapy, or Canteen Funds exempt?
A: Yes. The Department treats those K.S.A. 75-3728e funds as funds of the State of Kansas, so their direct purchases are exempt direct purchases by the state.

Q: What makes a purchase a "direct purchase"?
A: It must be billed directly to the exempt buyer and paid for by a check or voucher from the exempt buyer.

Q: Are purchases from an employee use fund exempt?
A: No. An employee use fund under K.S.A. 75-3080 is not part of the state treasury, so purchases using it do not qualify for exemption.

Q: What if an employee buys with personal funds?
A: Those purchases are taxable, even though the employee works for an exempt buyer.

Citations and references

• K.S.A. 75-3728e — establishes the Patient's Benefit Fund, Work Therapy Fund, and Canteen Fund, which the Department treats as funds of the State of Kansas whose direct purchases are exempt.
• K.S.A. 75-3080 — allows a state agency to apply for an employee use fund, which "shall not be a part of the state treasury"; purchases from such a fund do not qualify for the state exemption.
• 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-1998-220

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 18, 1998

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Dear XXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated December 3, 1998.

It is the opinion of the Kansas Department of Revenue that the following funds would be funds of the State of Kansas: Patient’s Benefit Fund, Work Therapy Fund, and Canteen Fund established pursuant to K.S.A. 75-3728e. Therefore, all direct purchase by these Funds would be considered as direct purchases by the state. Direct purchases by the state are exempt from Kansas retailers’ sales tax. A direct purchase is described as a sale of property or services that are billed directly to the exempt buyer and paid for by a check or voucher from the exempt buyer.

Purchases made by agents or employees of an exempt buyer with their personal funds are taxable. K.S.A. 75-3080 provides: “Any state agency may apply to the director of accounts and reports for the establishment of an employee use fund, which shall not be a part of the state treasury.” [emphasis added] It is the opinion of the Department that purchases utilizing funds of the Employee use funds would not qualify for exemption from Kansas retailers’ sales tax.

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

MDC

Date Composed: 12/23/1998 Date Modified: 10/10/2001

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