Does a 501(c)(3) adult day-care program for severely disabled young adults qualify for a Kansas sales-tax exemption?

Plain-English summary

A 501(c)(3) nonprofit that runs an adult day-care program for young adults with severe or multiple physical and mental disabilities asked whether it qualifies for a Kansas sales-tax exemption. Its clients are Medicaid-eligible and receive Home and Community Based Services (HCBS) waiver funding to stay in their homes and communities, and the organization had noticed that other disability-serving entities (intermediate care facilities, nursing homes, food for the homebound elderly and disabled) appear in the exemption publication. The Department's answer is still no.

The governing principle. Tax exemptions are narrowly construed: a group claiming exemption "must clearly qualify for exemption within the plain language of the statute." Kansas exempts entities either by name (for example, the American Heart Association, Kansas Affiliate, Inc. and the American Lung Association of Kansas, Inc.) or by category (non-profit hospitals, political subdivisions, nonprofit zoos). Some exemptions cover only certain purchases; others cover all.

Why it fails. K.S.A. 79-3606 contains more than 60 exemptions. The Department reviewed them and could not find any that encompassed this organization. That other disability-related facilities (like intermediate care facilities and nursing homes) are exempt does not help — those categories are specifically provided by statute, and an adult day-care program is a different thing that no listed exemption reaches.

Bottom line: the program must register, collect and remit Kansas sales or compensating tax on all sales it makes in Kansas. A worthy disability-services mission, Medicaid/HCBS funding, and 501(c)(3) status do not, by themselves, create a Kansas sales-tax exemption.

What this means for you

Disability-services and human-services nonprofits

Serving a vulnerable population and holding 501(c)(3) status does not by itself make you exempt in Kansas. Exemption requires fitting a specific statutory category in K.S.A. 79-3606 — and closely related but distinct programs (an adult day-care program vs. an intermediate care facility or nursing home) may not be covered.

"A similar facility is exempt"

The exemption publication lists categories the legislature specifically exempted (intermediate care facilities, nursing homes, food for the homebound elderly and disabled). Being analogous to one of those is not enough; you must actually fit the statutory language.

What to do

If no exemption fits, the organization must register, collect, and remit tax on its taxable Kansas sales, and it will pay tax on its own taxable purchases like any other consumer.

Common questions

Q: We run a 501(c)(3) adult day-care for disabled adults — are we exempt in Kansas?
A: Not automatically. The Department found no exemption in K.S.A. 79-3606 that covered this program, so it must register, collect, and remit tax.

Q: Nursing homes and intermediate care facilities are exempt — why aren't we?
A: Those categories are specifically named in the statute. An adult day-care program is a different thing, and being similar to an exempt facility doesn't extend the exemption.

Q: Does Medicaid/HCBS funding make us exempt?
A: No. The funding source doesn't determine sales-tax exemption; fitting a specific statutory exemption does, and none applied here.

Citations and references

• K.S.A. 79-3606 — the section containing the enumerated Kansas sales-tax exemptions (more than 60), some naming specific entities and some describing categories; the Department found none that covered this adult day-care program.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-024

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

March 13, 2002

XXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXXXX

Dear XXXXXXXXXXX:

I have been asked to respond to your letter dated February 15, 2002.

In your letter you stated:

XXXXXXXX has been recognized by the Internal Revenue Service as c 50IC3 organization (FEIN XXXXXXXX). Our mission is "creating opportunities f or young adults with developmental disabilities and significant physical challenges." Essentially, we provide an adult day care program for young adults with severe/multiple physical and mental disabilities. In the conduct of our business, we have a need to purchase supplies, equipment, and materials, pay for rent and utilities, etc.

I have reviewed Publication K5-1520 (9/01), Kansas Exemption Certificates and cannot determine our eligibility for exempt status, thus, I am requesting a ruling or opinion from the Department of Revenue. In reviewing KS-1520, it appears that other organizations serving people with disabilities are eligible for exempt status; e.g., intermediate care facilities for the mentally retarded, nursing homes, food for homebound elderly and the disabled, etc, XXXXXXX. was designed and is in business to assist families in keeping their disabled adult child out of an XXXXXX or nursing home, All of our clients are Medicaid eligible and in fact, receive Home and Community Based Waiver (HCBS) monies for their day program in order to remain in their homes and their communities.

As stated above, we are requesting a ruling regarding our eligibility for tax exempt status in the State of Kansas, XXXXXXXXXXXXXXXXXXXXXXXXX

Tax exemptions are narrowly construed. This means that a group that claims exemption must clearly qualify for exemption within the plain language of the statute. The Kansas sales tax act lists various groups that are exempt from tax. Some statutes identify the exempt entity by name. These include the statute that exempts the American Heart Association, Kansas Affiliate, Inc. and the American Lung Association of Kansas, Inc., among others. Other statutes extend exemption by describing the entity in general terms, such as the exemptions extended to non-profit hospitals, political subdivisions of the state, and nonprofit zoos. Some exemptions are limited to certain purchases while other exemptions extend to all purchases.

K.S.A. 79-3606 contains more than 60 additional exemptions. I have reviewed these exemptions and cannot find any that encompass your organization. Accordingly, your organization must register, collect and remit sales or compensating tax on all sales occurring in the State of Kansas.

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: 03/18/2002 Date Modified: 03/18/2002

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