Does a 501(c)(3) nonprofit that serves troubled youth qualify for exemption from Kansas sales tax on its purchases?

Plain-English summary

A nonprofit that serves troubled youth asked whether it qualifies for exemption from Kansas sales tax on its purchases. The Department ruled it does not.

The organization. It is a nonprofit exempt from federal income tax under IRC § 501(c)(3), "organized to render and provide alternatives to the institutional placement of disturbed, troubled, deprived, abused, abandoned, or delinquent youth." Worthy work — but that is a federal income-tax status, not a Kansas sales-tax exemption.

No matching Kansas exemption. "I have reviewed the materials that you provided in light of the sales tax exemptions extended in K.S.A. 79-3606. I could find no subsection in K.S.A. 79-3606 that could be read as exempting the . . . purchases." Kansas grants sales-tax exemption only to the specific organizations and uses that the legislature listed in K.S.A. 79-3606; being a charitable 501(c)(3) is not, by itself, on that list.

Exemptions are read narrowly. The Department invoked the governing rule of construction: "Under Kansas law, sales tax exemption statutes are strictly construed in favor of imposing tax and against exemption" (citing In re Atchison, Topeka & Santa Fe Ry. Co., 17 Kan. App. 2d 794 (1993)), and "sales tax exemption statutes will not be extended by implication and should not be read to include things that are not readily found within their plain terms" (citing Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984)). Because the organization did not fit within the plain terms of any listed exemption, the Department would not stretch the statute to cover it.

Bottom line: federal 501(c)(3) status does not confer a Kansas sales-tax exemption. An organization must fall within a specific subsection of K.S.A. 79-3606, and those provisions are construed strictly against exemption.

What this means for you

Nonprofits buying goods and services in Kansas

Do not assume your 501(c)(3) status exempts your Kansas purchases. Kansas sales-tax exemption for organizations is limited to those specifically listed in K.S.A. 79-3606. If your type of nonprofit is not named there, you pay sales tax on your purchases like any other buyer.

Match your organization to a specific subsection

Because exemptions are strictly construed and not extended by implication, the path to exemption is showing that you fit squarely within the plain terms of a listed exemption. If you cannot point to a specific subsection of K.S.A. 79-3606 that names your organization or use, expect to be taxable.

Vendors selling to charities

A buyer's charitable or nonprofit status is not enough to sell tax-free. Collect Kansas sales tax unless the buyer provides a valid Kansas exemption certificate tied to an actual statutory exemption.

Common questions

Q: Is a 501(c)(3) nonprofit exempt from Kansas sales tax?
A: Not automatically. The Department found no subsection of K.S.A. 79-3606 exempting this youth-services nonprofit's purchases, so it was taxable. Federal 501(c)(3) status is not itself a Kansas sales-tax exemption.

Q: Why did the Department read the exemption so narrowly?
A: Kansas sales-tax exemption statutes are strictly construed in favor of taxation and against exemption, and are not extended by implication — so an organization must fall within the plain terms of a listed exemption.

Q: How can a nonprofit become exempt?
A: By fitting within a specific exemption the legislature enacted in K.S.A. 79-3606. If no listed subsection covers the organization, it is not exempt.

Citations and references

• K.S.A. 79-3606 — the Kansas statute listing sales-tax exemptions. The Department reviewed it and found no subsection exempting the nonprofit's purchases, and applied the rule that exemption statutes are strictly construed against exemption (citing In re Atchison, Topeka & Santa Fe Ry. Co., 17 Kan. App. 2d 794 (1993), and Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984)).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2000-029

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

June 20, 2000

XXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXX

Dear XXXXXXXX:

I have been asked to respond to your letter of June 5, 2000. You request a private letter ruling that determines whether the XXXXXXXXX qualifies for exemption from Kansas sales tax. The XXXXXXXXX is a nonprofit organization that is exempt from federal income tax pursuant to IRC Sec. 501(c)(3). It is organized to render and provide alternatives to the institutional placement of disturbed, troubled, deprived, abused, abandoned, or delinquent youth.

I have reviewed the materials that you provided in light of the sales tax exemptions extended in K.S.A. 79-3606. I could find no subsection in K.S.A. 79-3606 that could be read as exempting the XXXXXX purchases. Under Kansas law, sales tax exemption statutes are strictly construed in favor of imposing tax and against exemption. In re Atchison, Topeka & Santa Fe Ry Co., 17 Kan. App. 2d 794 (1993). It is a fundamental rule of statutory construction that sales tax exemption statutes will not be extended by implication and should not be read to include things that are not readily found within their plain terms. Director of Taxation v. Kansas Krude Oil Reclaiming Co., 236 Kan. 450, 454 (1984).

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 by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 06/20/2000 Date Modified: 10/11/2001

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