Does a 501(c)(3) endowment foundation that supports an educational institution qualify as an 'educational institution' for Kansas sales tax?

Plain-English summary

A foundation asked whether it qualifies as an "educational institution" for purposes of Kansas retailers' sales tax. The foundation "operates solely at the [institution] as an Internal Revenue Code 501(c)(3) foundation," and its purpose "is to provide education, research and patient care" there.

The definition the Department applied. "K.S.A. 79-3602, as amended by the 1998 Kansas Legislature, defines the term 'educational institution.'" That 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 conclusion. "Based solely on the information supplied by the Foundation, it is the opinion of the Kansas Department of Revenue that the [Foundation] would qualify as an educational institution."

Bottom line: a nonprofit endowment foundation set up to hold and administer a permanent fund for the sole benefit of an educational institution falls within the amended statutory definition of "educational institution" — the status that matters for the sales tax treatment Kansas gives educational institutions.

What this means for you

The 1998 amendment reaches supporting foundations

The amended definition in K.S.A. 79-3602 expressly includes nonprofit endowment associations and foundations — not just the school itself — when they exist to hold and administer a permanent fund for an educational institution's sole benefit.

The purpose and structure are what qualify the entity

The Department looked to how the foundation is "organized and operated" — exclusively to receive, hold, invest, and administer money and property as a permanent fund for the support and sole benefit of an educational institution. A 501(c)(3) foundation meeting that description qualifies.

Qualifying status is fact-specific

The Department stressed its opinion was "[b]ased solely on the information supplied by the Foundation." A different structure or purpose could change the answer, and the ruling binds the Department only as to this taxpayer and these facts.

Educational-institution status is a gateway

Being classified as an educational institution is what puts an entity in the category Kansas treats favorably for sales tax; this ruling resolves that threshold classification for the foundation.

Common questions

Can a foundation — not a school itself — be an "educational institution" in Kansas?
Yes. The amended definition in K.S.A. 79-3602 includes nonprofit endowment associations and foundations organized and operated exclusively to hold a permanent fund for the sole benefit of an educational institution.

What did this foundation do?
It operated as a 501(c)(3) foundation to provide education, research, and patient care at the institution, and to hold a permanent fund for that institution's benefit.

Did the Department rule the foundation qualifies?
Yes. It concluded the foundation "would qualify as an educational institution," based solely on the information the foundation supplied.

Does this ruling apply to any support foundation?
No. It binds the Department only as to this taxpayer and these facts; another entity's qualification turns on its own structure and purpose.

Citations and references

• K.S.A. 79-3602 (as amended by the 1998 Kansas Legislature) — defines "educational institution" to include nonprofit endowment associations and foundations organized and operated exclusively to receive, hold, invest, and administer money and property as a permanent fund for the support and sole benefit of an educational institution.
• 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 August 21, 1998 by Mark D. Ciardullo, Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-90

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 21, 1998

XXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX

Dear XXXXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated July 15, 1998.

In your letter you stated that the XXXXXXXXXXXXXXXXXXXXXXXX (“Foundation”) operates solely at the XXXXXXXXXXXXXXXXXX as an Internal Revenue Code 501(c)(3) foundation. The purpose of the Foundation is to provide education, research and patient care at the XXXXXXXXXXXXXXXXXXX. You seek a private letter ruling at to whether or not the Foundation would qualify as an educational institution for purposes of Kansas retailers’ sales tax. 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 the Foundation, it is the opinion of the Kansas Department of Revenue that the XXXXXXXXXXXXXXXXXXXXXXXX would qualify as an educational institution

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

cc: Mr. Robert Clelland

Date Composed: 08/31/1998 Date Modified: 10/10/2001

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