Must a nonprofit that holds an annual fundraising banquet and gun auction collect Kansas sales tax on admission tickets, food, and auction sales?

Plain-English summary

A nonprofit chapter holds an annual fundraising event — a banquet with an auction at which it sells guns it buys for that purpose. Its representative asked how Kansas sales tax applies. The Department's answer: the chapter must register and collect sales tax on the event's taxable sales.

Nonprofits generally aren't exempt sellers. Most Kansas nonprofit organizations, including this chapter, are not exempt from the sales tax act — they must pay sales tax on their purchases and charge it on their taxable sales. When an organization holds a recurring annual fundraising event, it must register and collect sales tax on the taxable sales made there. So the chapter must collect tax on:

• Admission tickets to the banquet;
• Food and sales-taxable drinks charged to attendees; and
• Sales made at the auction held during the banquet.

Why the auction sales are taxable — the "isolated or occasional sale" exception doesn't apply. K.S.A. 79-3602(j) exempts a nonrecurring sale by a person not engaged at the time in the business of selling such property, and includes certain auctioneer sales "on behalf of not more than two principals or households if such sale is nonrecurring." Here, though, the chapter's sales are recurring (an annual fundraiser) and the guns are acquired for resale, so the exception does not apply — the chapter is engaged in the business of selling tangible personal property at the time of sale.

The practical upside — resale exemption. Because the guns are bought for resale, the chapter may claim a resale exemption when it buys the auction guns, then collect sales tax when they sell at the auction. It may also claim a resale exemption on food bought to prepare banquet meals, provided it is charging and collecting sales tax on the banquet tickets.

What this means for you

Nonprofits running recurring fundraisers

An annual (or otherwise recurring) event makes you a recurring seller who must register, collect, and remit Kansas sales tax on the event's taxable sales — tickets, taxable food and drink, and auctioned goods. Being a nonprofit does not, by itself, exempt these sales.

Buy for resale, then collect on the sale

Items you acquire to resell at the event (like auction guns) can be bought under a resale exemption; you then charge tax when you sell them. Likewise, food used for banquet meals can be bought for resale if you're taxing the meal/ticket charge.

Don't rely on "occasional sale"

The isolated or occasional sale exception in K.S.A. 79-3602(j) is for nonrecurring sales by someone not in the selling business. A repeating annual fundraiser with goods bought for resale falls outside it.

Common questions

Q: We're a nonprofit. Do we really have to collect sales tax at our annual fundraiser?
A: Yes. The Department ruled that most Kansas nonprofits aren't exempt sellers, and a recurring annual fundraiser must register and collect tax on admission tickets, taxable food and drinks, and auction sales.

Q: Aren't the auction sales exempt as occasional sales?
A: No. The isolated or occasional sale exception (K.S.A. 79-3602(j)) applies only to nonrecurring sales by a person not in the business of selling. Your annual event is recurring and the guns are bought for resale, so it doesn't apply.

Q: Can we buy the auction guns without paying sales tax?
A: Yes — claim a resale exemption when you buy the guns, then collect sales tax when they sell at the auction. Food for banquet meals can also be bought for resale if you tax the banquet tickets.

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 shows how the Department treats recurring nonprofit fundraisers.

Citations and references

• K.S.A. 79-3602(j) — defines "isolated or occasional sale" as a nonrecurring sale by a person not then engaged in the business of selling; includes certain auctioneer sales for not more than two principals/households if nonrecurring. The Department held it does not apply to the recurring fundraiser's auction sales.
• Recurring-sales rule — an organization holding a recurring annual fundraising event must register and collect sales tax on the taxable sales (admissions, taxable food/drink, auction goods).
• Resale exemption — the chapter may buy the auction guns (and banquet food, if tickets are taxed) for resale and collect tax on the eventual sale.
• 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-2003-004

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

January 28, 2003

XXXX
XXXX
XXXX

RE: Your letter dated January 16, 2003

Dear XXXX:

Thank you for your recent letter. You represent the XXXX Chapter of XXXX ("the chapter"). The chapter is a non-profit entity that holds an annual fundraising event. Part of the fundraising event is an auction. The chapter buys guns, which are then sold at the auction. You how Kansas sales tax applies to these activities.

Most Kansas non-profit organizations, including the chapter, are not exempt from the requirements of the Kansas retailers' sales tax act. This means that most of these organizations, including the chapter, must pay sales tax on its purchases and charge sales tax on its taxable sales. Generally, if an organization holds a recurring annual fundraising event, the organization must register and collect sales tax on the taxable sales made at the event. Accordingly, since the chapter holds an annual fundraising banquet, it is considered to be making recurring sales and must register for and collect sales tax on the sales of admission tickets to the banquet and on any customer charges for food and sales-taxable drinks.

Sales made at the auction that is held during the banquet are also subject to sales tax. The fact that these auction sales are taxable is found under the definition of "isolated or occasional sale," which is set forth at K.S.A. 79-3602(j):

(j) "Isolated or occasional sale" means the nonrecurring sale of tangible personal property, or services taxable hereunder by a person not engaged at the time of such sale in the business of selling such property or services. Any religious organization which makes a nonrecurring sale of tangible personal property acquired for the purpose of resale shall be deemed to be not engaged at the time of such sale in the business of selling such property. Such term shall include: . . . (2) any sale of tangible personal property made by an auctioneer or agent on behalf of not more than two principals or households if such sale is nonrecurring and any such principal or household is not engaged at the time of such sale in the business of selling tangible personal property. (emphasis added).

Here, the chapter is engaging in what is considered to be recurring sales, because it holds an annual fundraiser. In addition, the guns are being acquired for the purpose of resale. Therefore, the underlined portion of K.S.A. 79-3602(j) means that the exception for isolated or occasional sales does not apply to the auction sales since the sale is not "nonrecurring." In addition, the chapter is engaging at the time of the sale in the business of selling tangible personal property, and the guns are being acquired with the intent of reselling them.

What this means on a practical basis is that the chapter may claim a resale exemption when it buys the guns that will be auctioned off at the fundraiser. Sales tax must be collected when the guns are sold at the fundraising auction. The chapter may also claim resale exemption when it buys food that is prepared for banquet meals if sales tax is being charged and collected on sales of the banquet tickets.

I hope that I have answered all of your questions. If you have any more, please call me at 785-296-3081. 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,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 02/10/2003 Date Modified: 02/10/2003

Table 1

Table 2