Are a nonprofit museum's renovation purchases (including for its gift shop) exempt from Kansas sales tax, and are visitor donations taxable as admissions?

Plain-English summary

A representative wrote on behalf of a nonprofit 501(c)(3) organization - owned by various churches - that is buying and renovating a building (listed on the National Historic Register) to open as a museum. The organization pays for all the renovations, will not charge admission (but will have a donation box), and will run a small gift shop for which it will get a sales tax certificate and collect tax. It asked five questions, chiefly whether its renovation purchases are exempt (as a religious organization under K.S.A. 79-3606(aaa) or a nonprofit museum under K.S.A. 79-3606(qq)), whether it must prorate the gift-shop portion, and whether visitor donations are taxable as admissions. The Department ruled the organization is a museum, its renovation purchases are exempt, and the donations are exempt.

It qualifies as a museum. The Department's opinion: "The organization qualifies as a museum pursuant to K.S.A. 79-3606(qq)." That is the ground of decision, so the alternative religious-organization theory did not need to be reached.

The renovation purchases - including the gift shop - are exempt. "The direct purchase by the organization of tangible personal property and services utilized for the renovation of the building for a museum, including the proposed gift shop are exempt from sales tax." Because the gift-shop renovation is itself exempt, the organization's fallback question about prorating the gift-shop portion is moot.

Visitor donations are not taxable admissions. "Donations are exempt from sales tax." Since the organization does not charge an admission fee and only accepts donations, those donations are not treated as taxable admissions - so the follow-on questions about taxing the full amount versus fair market value, and distinguishing touring donors from non-touring donors, fall away.

Bottom line: a qualifying nonprofit museum can buy the tangible personal property and services for its building renovation (gift shop included) exempt under K.S.A. 79-3606(qq), and donations from visitors are exempt rather than taxable admissions.

What this means for you

Nonprofit museums renovating a facility

If your organization qualifies as a museum under K.S.A. 79-3606(qq), its direct purchases of the tangible personal property and services used to renovate the museum building are exempt from Kansas sales tax - and here that exemption extended to the gift-shop area, so no proration was required.

Donation boxes vs. admission charges

Voluntary donations for entry - where no admission fee is charged - were treated as exempt, not as taxable admissions. Note that this turned on the museum not charging admission; a mandatory admission charge is a different question.

The gift shop still collects tax on its sales

Exempt renovation purchases do not exempt the shop's retail sales. The organization said it would obtain a sales tax certificate and collect sales tax on gift-shop sales, which is the normal obligation for a nonprofit's retail sales.

Common questions

Q: Are a nonprofit museum's building-renovation purchases exempt in Kansas?
A: Yes, when the organization qualifies as a museum under K.S.A. 79-3606(qq); its direct purchases of tangible personal property and services for the renovation are exempt.

Q: Did the museum have to prorate and pay tax on the gift-shop portion of the renovation?
A: No. The Department held the renovation purchases were exempt "including the proposed gift shop," so no proration was needed.

Q: Are donations from museum visitors taxable as admissions?
A: No. The Department ruled the donations are exempt from sales tax; they are not treated as taxable admissions.

Citations and references

• K.S.A. 79-3606(qq) - the exemption under which the Department found the organization "qualifies as a museum," making its direct purchases of tangible personal property and services for renovating the museum building (including the proposed gift shop) exempt from sales tax. The organization had also raised the religious-organization exemption in K.S.A. 79-3606(aaa) as an alternative, but the Department decided the matter on the museum exemption in (qq).

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-037

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

April 26, 2001

XXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX

The purpose of this letter is to respond to your letter dated March 29, 2001. In it, you request a private letter ruling on behalf XXXXXXXXXXXXX.

In your letter you stated:

As indicated above, the Organization is a non-profit organization organized under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) and is owned by various churches throughout the state, all of which are also organized under Section 501(c)(3) of the Code. One of the members of the Organization, XXXXXXXXXXXXXXX (the “Mission”), has entered a contract with XXXXXXXXXXXX. for he purchase of a building that the Organization intends to develop into the XXXXXXXXXXXX (the “Museum”). The building was placed on the National historic Register in XXXX and, under the terms of the agreement with XXXXXXXXXXXXX., the Organization is paying all renovations to the building. Upon completion of the renovations, title to the building will pass to the Mission, which will then transfer title to the Organization. The renovations will be made to an existing building and will not involve the addition of any rooms or a new floor. Nor will the renovations involve the completion of unfinished space in the building.

The Organization has been established to promote the XXXXXXX faith, to educated the public regarding the XXXXXX religion, and XXXXXXXXXchurches together to conduct activities which will promote the faith. One such activity will be the establishment and operation of the Museum. The Museum will feature art, photographs, and artifacts of the XXXXXXXXXfrom the XXXXXXXX and, through these items, will tell the story of the XXXXXXXXXXX who came to Kansas and the Midwest from XXXXXXXXX century. The Organization will not charge an admission fee for tours of the Museum, but will have a place at the entrance of Museum for donations.

The museum will have a small gift shop which will XXXXXXXXXX of the XXXXXXX communities, along with books on church historyXXXXXXXX. The gift shop will be operated by the Organization, which will obtain a sales tax certificate and will collect sales tax on sales made form the gift shop. The building in which the Museum is located will also contain an office which will serve as head quarters for the Organization. The Office will be used by the Executive Director of the Organization one to two days per week to carry out the administration of the Organization.

Your letter continues will a series of issues:

1. Are the tangible personal property and services purchased by the Organization for the renovations to the building exempt from sales tax as purchases by a religious organization under K.S.A. 79-3606(aaa) or, in the alternative, as purchases by a non-profit museum pursuant to K.S.A. 79-3606(qq)?

2. If the tangible personal property and services purchased by the Organization for renovation relating to the gift shop are not exempt from sales tax, can the Organization prorate such purchase, paying sales tax on the tangible personal property and services that relate to the gift shop while claiming exemption for the tangible personal property and services relating to the remainder of the museum?

3. Are the donations made by individuals who tour the museum subject to sales tax as admissions?

4. If the donations are subject to sales tax as admission, is the entire amount of such donations subject to sales tax or only the portion that represents fair market value of the tour?

5. If the donations are subject to sales tax as admissions, how would the State propose that the Organization distinguish between donations made by individuals touring the museum and individuals who simply donate money without touring the museum (which presumably would not be subject to sales tax)?

It is the opinion of the Kansas Department of Revenue that:

The organization qualifies as a museum pursuant to K.S.A. 79-3606(qq).

The direct purchase by the organization of tangible personal property and services utilized for the renovation of the building for a museum, including the proposed gift shop are exempt from sales tax.

Donations are exempt from 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: 04/27/2001 Date Modified: 10/11/2001

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