Is a nonprofit hospital gift shop exempt from Kansas sales tax?

Plain-English summary

A not-for-profit hospital gift shop asked the Department to recognize it as exempt from Kansas sales tax, noting that all its profits go to charitable donations — hospitals, community organizations, and student scholarships.

The Department explained that, unlike many states, Kansas does not extend a general sales tax exemption to not-for-profit organizations. To be exempt, the gift shop would have to fall within one of the conceptual exemptions in K.S.A. 79-3606 or be one of the organizations listed there. Someone had suggested the K.S.A. 79-3606(b) exemption — which covers, among other things, direct purchases by a nonprofit hospital — but the gift shop is not a nonprofit hospital, so that exemption doesn't apply.

Instead, the gift shop acts as a retailer. It may purchase items intended for resale exempt from sales tax (using a resale exemption), but it must collect sales tax on the selling price when it sells those items.

What this means for you

If you run a hospital gift shop or similar nonprofit retail operation in Kansas, plan to operate as a taxable retailer.

• Being nonprofit isn't enough. Kansas has no general exemption for not-for-profits; charitable use of the profits doesn't make sales exempt.
• The hospital exemption is for the hospital. 79-3606(b) can cover a nonprofit hospital's own direct purchases — but a gift shop is not the hospital, so it doesn't get that exemption.
• Buy for resale exempt, then collect on sales. You can buy inventory for resale without tax (with a resale exemption certificate), but you must charge and remit sales tax on the retail selling price.
• Register as a retailer. Collecting and remitting tax means holding a Kansas sales tax registration.

Common questions

Is a nonprofit hospital gift shop exempt from Kansas sales tax?
No. Kansas has no general nonprofit exemption, and a gift shop is not a nonprofit hospital, so the 79-3606(b) hospital exemption doesn't reach it.

Does it matter that all profits go to charity?
No. Charitable use of the proceeds doesn't exempt the gift shop's retail sales.

Can the gift shop buy its inventory tax-free?
Yes — items intended for resale can be bought exempt (with a resale exemption). But the shop must then collect sales tax on the selling price when it sells them.

Can other gift shops rely on this ruling?
Not directly. A private letter ruling binds the Department only for the requesting taxpayer and stated facts; treat it as guidance on how Kansas treats nonprofit retail operations.

Citations and references

• K.S.A. 79-3606(b) — the exemption suggested to the taxpayer, which covers (among other things) direct purchases by a nonprofit hospital; the Department held it does not apply because the gift shop is not a nonprofit hospital.
• K.S.A. 79-3606 (generally) — the Department noted that to be exempt an organization must fall within one of this section's conceptual exemptions or be listed there; Kansas grants no general not-for-profit exemption.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1999-53.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

March 8, 1999

XXXXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXX

Dear XXXXXXXXXXX:

I have been asked to respond to your letter of February 18, 1999. In it you ask for a private letter ruling that recognizes the XXXXXXXXXXXXXXXXXXX is exempt from payment of Kansas sales tax. You stated that the XXXXXX is a not-for-profit organization and all profits from it’s sales are given as charitable donations to hospitals, community organizations and student scholarships.

Unlike many states, Kansas does not extend a general sales tax exemption to not-for-profit organizations. Accordingly, to be exempt, the XXXXXX must fall within one of the conceptual exemptions in K.S.A. 79-3606 or be one of the organizations listed therein as exempt. It was suggested to you by someone in your organization that the exemption contained in K.S.A. 79-3606(b) would apply to purchases and sales made the XXXXXX. One of the exemptions in this subsection pertain to direct purchases by nonprofit hospital. The XXXXXX is not a nonprofit hospital.

The XXXXXXX is acting in the capacity of a retailer. The XXXXXXX would purchase items intended for resale exempt from sales tax and must collect sales tax on the selling price when sold.

I have enclosed a copy of K.S.A. 79-3606 for you to review.

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: 03/16/1999 Date Modified: 10/11/2001

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