Are direct purchases by a public or private nonprofit hospital exempt from Kansas sales tax, and does the exemption extend to a hospital foundation?

Plain-English summary

A taxpayer asked about the Kansas sales tax treatment of purchases by a nonprofit hospital and by a hospital foundation. The Department drew a clear line between the two.

The hospital exemption. K.S.A. 79-3606(b) exempts "all sales of tangible personal property or service, including the renting and leasing of tangible personal property purchased directly by … a public or private nonprofit hospital … and used exclusively for … hospital … purposes," except when (1) the hospital is engaged or proposes to engage in any business specifically taxable under the act and the items are used in that business. So when a public or private nonprofit hospital makes direct purchases, those purchases are exempt from Kansas sales tax under 79-3606(b).

But not the foundation. The Department added a critical caveat: the Kansas Sales Tax Law does not contain a sales tax exemption for hospital foundations. A hospital foundation — a separate entity that supports the hospital — does not get the hospital's exemption, so its own purchases are not exempt.

What this means for you

Nonprofit hospitals

Your direct purchases of property and services used exclusively for hospital purposes are exempt under 79-3606(b). Buy directly (in the hospital's name, on the hospital's account) and use the exemption certificate. Watch the exception: items used in a separately taxable business the hospital runs are not exempt.

Hospital foundations

There is no Kansas exemption for a hospital foundation. If the foundation buys in its own name, expect to pay sales tax. To use the hospital's exemption, the purchase must genuinely be a direct purchase by the hospital, not by the foundation.

Vendors selling to hospitals and foundations

Accept an exemption certificate for a direct hospital purchase, but treat a foundation's purchase as taxable unless the hospital itself is the purchaser of record.

Common questions

Q: Are a nonprofit hospital's purchases exempt from Kansas sales tax?
A: Yes, direct purchases used exclusively for hospital purposes are exempt under K.S.A. 79-3606(b) — subject to the exception for items used in a separately taxable business the hospital runs.

Q: Does a hospital foundation get the same exemption?
A: No. The Department stated that Kansas sales tax law does not contain an exemption for hospital foundations, so the foundation's own purchases are not exempt.

Q: How do we make sure a purchase qualifies?
A: It must be a direct purchase by the hospital (not the foundation), used exclusively for hospital purposes, and not for a separately taxable business activity.

Q: Does this ruling apply to my organization?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it reflects the Department's distinction between a hospital and its foundation.

Citations and references

• K.S.A. 79-3606(b) — exempts direct purchases by a public or private nonprofit hospital used exclusively for hospital purposes, except items used in a separately taxable business the hospital engages in.
• No foundation exemption — the Department confirmed Kansas sales tax law contains no exemption for hospital foundations.
• 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-2002-094

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 8, 2002

TTTTTTTTTTTTTT

Dear Ms. TTTTTTTTTTT:

We wish to acknowledge receipt of your e-mail dated October 8, 2001, regarding the application of Kansas Retailers' Sales tax.

K.S.A. 79-3606(b) exempts from sales tax: "all sales of tangible personal property or service, including the renting and leasing of tangible personal property purchased directly by......a public or private nonprofit hospital...and used exclusively for...hospital...purposes, except when: (1) Such...hospital is engaged or proposes to engage in any business specifically taxable under the provisions of this act and such items of tangible personal property or service are used or proposed to be used in such business,..."

Please be advised that if a public or private nonprofit hospital makes direct purchases, then said purchases would be exempt from Kansas sales tax(es), pursuant to K.S.A. 79-3606(b). However, the Kansas Sales Tax Law does not contain a sales tax exemption for hospital foundations.

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 in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 11/15/2002 Date Modified: 11/15/2002

Table 1

Table 2