Are direct purchases by a nonprofit hospital — including subscriptions and motel rooms — exempt from Kansas sales tax?

Plain-English summary

The question was whether various direct purchases by a nonprofit hospital — including newspaper and magazine subscriptions and motel rooms — are exempt from Kansas sales tax.

The nonprofit-hospital exemption is broad but conditional. The Department quoted K.S.A. 79-3606(b), which exempts "all sales of tangible personal property or service, including the renting and leasing of tangible personal property purchased directly by......a public or private nonprofit hospital...and used exclusively for...hospital...purposes, except when: (1) Such...hospital is engaged or proposes to engage in any business specifically taxable under the provisions of this act and such items of tangible personal property or service are used or proposed to be used in such business,..."

The holding. The Department advised that "newspaper and magazine subscriptions, motel rooms and other purchases made directly by a non-profit hospital ... that are not going to be used in carrying out a taxable business, would be exempt from Kansas state and local sales tax(es)." It enclosed a Question and Answer document covering purchases made by nonprofit hospitals.

Bottom line: when a nonprofit hospital buys directly and uses the item exclusively for hospital purposes, the purchase is exempt — even for things like subscriptions or motel rooms that would otherwise be taxable — unless the item is used in a taxable business the hospital runs.

What this means for you

"Direct purchase" is the key requirement

The exemption depends on the hospital being the direct buyer of the property or service. The exemption statute is built around property or services "purchased directly by" the nonprofit hospital; purchases routed through employees or other parties, or paid with personal funds, are analyzed differently.

The exemption reaches services and rentals, not just goods

K.S.A. 79-3606(b) exempts "tangible personal property or service, including the renting and leasing of tangible personal property." That is why an otherwise-taxable service like a motel room can be exempt when the hospital buys it directly for hospital purposes.

The taxable-business exception

The statute carves out purchases used in a business "specifically taxable under the provisions of this act." If the hospital operates a taxable business (for example, a taxable retail operation) and uses the item in that business, the exemption does not apply to that item.

Keep exemption documentation

A hospital claiming the exemption should provide the seller a completed exemption certificate and be prepared to show that the purchases are used exclusively for hospital purposes and not in a taxable business activity.

Common questions

Q: Are magazine and newspaper subscriptions taxable for a nonprofit hospital?
A: Not when purchased directly by the hospital and used exclusively for hospital purposes — the Department treated such subscriptions as exempt under K.S.A. 79-3606(b).

Q: A motel room is normally a taxable service. Why was it exempt here?
A: Because the exemption covers services, including rentals, purchased directly by a nonprofit hospital for hospital purposes. The direct-purchase-for-hospital-purposes character controls, not the general taxability of the service.

Q: Is there any limit on the exemption?
A: Yes. It does not apply when the hospital uses the property or service in a business that is specifically taxable under the sales tax act.

Q: Does the hospital need to be a particular kind of hospital?
A: The exemption is written for a public or private nonprofit hospital using the purchases exclusively for hospital purposes.

Citations and references

• K.S.A. 79-3606(b) — exempts sales of tangible personal property or services, including the renting and leasing of property, purchased directly by a public or private nonprofit hospital and used exclusively for hospital purposes, except when used in a business specifically taxable under the act.
• Question and Answer guidance on nonprofit hospital purchases — a Department document, enclosed with the ruling, addressing purchases made by nonprofit hospitals.
• 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-1998-223

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 29, 1998

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Dear Ms. TTTT:

We wish to acknowledge receipt of your letter dated December 17, 1998, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(b) exempts from sales tax: "all sales of tangible personal property or service, including the renting and leasing of tangible personal property purchased directly by......a public or private nonprofit hospital...and used exclusively for...hospital...purposes, except when: (1) Such...hospital is engaged or proposes to engage in any business specifically taxable under the provisions of this act and such items of tangible personal property or service are used or proposed to be used in such business,..."

Please be advised that newspaper and magazine subscriptions, motel rooms and other purchases made directly by a non-profit hospital, such as TTTTTTTTTTTTTTTT, that are not going to be used in carrying out a taxable business, would be exempt from Kansas state and local sales tax(es).

For your convenience, I have enclosed a Question and Answer format which covers purchases made by non-profit hospitals.

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

Enc

Date Composed: 01/12/1999 Date Modified: 10/10/2001

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