Which of a school PTO's carnival charges — game tickets, a cakewalk, a moonwalk — are subject to Kansas sales tax?

Plain-English summary

A school parent-teacher organization (PTO) hosts a carnival with no admission charge. Attendees buy tickets to play games (each play wins a token prize), to enter a cakewalk, and to use a rented "moonwalk." The PTO asked the Department which of these charges are subject to Kansas sales tax. The answer turns on a goods-versus-services line.

The PTO exemption covers goods, not services. The Department explained that K.S.A. 79-3606(yy) exempts "all sales of tangible personal property and services purchased by" a PTO, and "all sales of tangible personal property by or on behalf of" a PTO. Read carefully: on the selling side, the exemption reaches the PTO's sales of tangible personal property — but not its sales of services. As the Department put it: "sales of tangible personal property made by a PTO are exempt from sales tax, while sales of services made by a PTO are subject to sales tax."

So the goods side is exempt. The Department gave examples of exempt PTO sales: tickets exchanged for food or drink, silent-auction proceeds, and sales of school supplies, t-shirts, yearbooks, etc. All are sales of tangible personal property and ride the 79-3606(yy) exemption.

But the carnival activities are taxable services. Kansas imposes tax not only on goods but on certain enumerated services, including — under K.S.A. 79-3603(m) — fees and charges for participation in sports, games and other recreational activities. The Department concluded that "sales of tickets for the right to play carnival games, participate in a cakewalk, or use a 'moonwalk' are considered to be services, and are therefore subject to Kansas sales tax." So all three of the PTO's questions — game tickets, the cakewalk, and the moonwalk — are answered the same way: taxable.

The "prize" theory does not hold. A parent had suggested that because a token prize is given to everyone who plays, the game tickets should not be taxed. The Department's analysis rejects that: the taxable event is the charge for participation in the game (a service), regardless of the small prize handed out.

Bottom line: a PTO's sales of goods at a carnival are exempt, but charges for the right to participate in games and recreational activities are taxable services. The exemption follows the tangible-property side of the fundraiser, not the amusement side.

What this means for you

PTOs and school fundraising groups

The Kansas PTO exemption is generous on goods — food, drink, spirit wear, yearbooks, supplies, silent-auction items sold by or on behalf of the PTO are exempt. But it stops at services. If you charge for participation in games, activities, or amusements, you are making a taxable sale of a service and must collect and remit Kansas sales tax on those charges.

Sort each carnival line into "goods" or "participation"

A practical rule from this ruling: a ticket you trade for a physical thing (a hot dog, a drink, a raffle prize you can carry away as a purchase of property) sits on the exempt goods side, while a ticket you trade for the right to do something (play a game, do the cakewalk, jump in the moonwalk) is a taxable recreational service. Track and tax the two streams separately.

A token prize does not convert a service to a good

Handing every player a small prize does not turn a game charge into a tax-free sale of property. The Department treated the charge as payment for participation — a service — so it remained taxable.

Common questions

Q: Are a school PTO's sales at a carnival exempt from Kansas sales tax?
A: Its sales of tangible personal property are exempt under K.S.A. 79-3606(yy) — food, drink, school supplies, t-shirts, yearbooks, and silent-auction items. Its sales of services are not exempt.

Q: Are carnival game, cakewalk, and moonwalk tickets taxable?
A: Yes. The Department ruled that tickets sold for the right to play games, do a cakewalk, or use a moonwalk are services and are subject to Kansas sales tax.

Q: A prize is given for every game played — doesn't that make it a tax-free sale of property?
A: No. The charge is for participation in the game, which is a taxable service; the token prize does not change that result.

Q: What about tickets exchanged for food or drink?
A: Those are exempt. A ticket traded for food or drink is a sale of tangible personal property by the PTO, which is exempt under K.S.A. 79-3606(yy).

Citations and references

• K.S.A. 79-3603 — the Kansas sales tax imposition statute; taxes sales of tangible personal property and certain enumerated services, including under subsection (m) fees and charges for participation in sports, games, and other recreational activities.
• K.S.A. 79-3606 — the exemption statute; subsection (yy) exempts sales of tangible personal property and services purchased by a PTO and all sales of tangible personal property by or on behalf of a PTO, but not the PTO's sales of services.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2001-129

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 29, 2001

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Re: Kansas Sales Tax

Dear XXXXX:

Your correspondence of November 26, 2001 has been referred to me for response. Thank you for your inquiry.

By your letter you request our advice with regard to the following scenario and questions presented on behalf of your school’s PTO:

The PTO hosts a carnival. There is not an admission charge. Anyone can attend. The carnival includes games, food, and a silent auction.

As regards the games, tickets can be purchased in advance 5 tickets for $1.00 or the day of the carnival 4 tickets for $1.00. Playing a game requires 1 ticket. Anyone playing the game receives a prize (while the prize is not expensive it is a nice prize such as a package of clay, ball, whistle – but nonetheless a token prize). Historically, the PTO has paid sales tax on the amount of money of game tickets sold. [A parent] is suggesting that it is not necessary to pay sales tax because a prize is given to anyone playing the games. Would that be correct or not?

Secondly, the ticket may be used this year to enter into a cakewalk contest where only one child per round will receive the cake. Should sales tax be paid on these tickets for the cakewalk?

Third, the PTO is renting a “moonwalk” and charges one ticket to participate in the moonwalk. Should sales tax be paid on the moonwalk revenues?

In response to your request, please be advised the Kansas sales tax is imposed by K.S.A. 79-3603. The statute imposes sales tax on all sales of tangible personal property, and on certain enumerated services. The statute provides, in pertinent part, for the imposition of tax on:

(a) The gross receipts received from the sale of tangible personal property at retail within this state;

(e) the gross receipts from the sale of admissions to any place providing amusement, entertainment or recreation services including admissions to state, county, district and local fairs, but such tax shall not be levied and collected upon the gross receipts received from sales of admissions to any cultural and historical event which occurs triennially;

(m) the gross receipts received from fees and charges by public and private clubs, drinking establishments, organizations and businesses for participation in sports, games and other recreational activities, but such tax shall not be levied and collect upon the gross receipts received from: (1) Fees and charges by any political subdivision, by any organization exempt from property taxation pursuant to paragraph Ninth of K.S.A. 79-201, and amendments thereto, or by any youth recreation organization exclusively providing services to persons 18 years of age or younger which is exempt from federal income taxation pursuant to section 501(c)(3) of the federal internal revenue code of 1986, for participation in sports, games and other recreational activities; and (2) entry fees and charges for participation in a special event or tournament sanctioned by a national sporting association to which spectators are charged an admission which is taxable pursuant to subsection (e);

Exemptions from sales tax are found in K.S.A. 79-3606. Subsection (yy) of the statute provides an exemption for:

(yy) all sales of tangible personal property and services purchased by a parent-teacher association or organization, and all sales of tangible personal property by or on behalf of such association or organization;

The gist of the statute is that sales of tangible personal property made by a PTO are exempt from sales tax, while sales of services made by a PTO are subject to sales tax. For example, tickets exchanged for food or drink provided by a PTO, proceeds from a silent auction held by or on behalf of a PTO, or the sale of school supplies, t-shirts, yearbooks, etc. by a PTO are exempt from sales tax as a sale of tangible personal property. On the other hand, sales of tickets for the right to play carnival games, participate in a cakewalk, or use a “moonwalk” are considered to be services, and are therefore subject to Kansas sales tax.

For your reference, please find enclosed a copy of the Kansas Sales And Compensating Use Tax booklet published in March of 2000.

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.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Enclosure: Kansas Sales And Compensating Use Tax

Date Composed: 12/13/2001 Date Modified: 12/13/2001

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