Are the sign-up fee and recurring monthly charges for a health discount card (giving members discounts from medical providers and retailers) subject to Kansas sales tax?

Plain-English summary

A multi-level marketing company that sells health products in Kansas through independent contractors (and already collects and remits Kansas sales tax on their behalf under an agreement with the Department) was considering a new product: health discount cards. The card lets the holder receive discounts from medical care providers and retailers — more than 300,000 participate in the plan — for a single initial sign-up fee plus recurring monthly charges. The company asked whether those customer charges are subject to Kansas sales tax. The Department's answer: no — the charges are not taxable. That covers both the sign-up fee and the monthly charges.

Why. Kansas retailers' sales tax applies to sales of tangible personal property and to certain enumerated services — including dues, admission charges, and fees for participation in sports and recreation. Paying for the health card is not a payment for any of these taxable services.

The Department addressed the coupon-book concern directly. While some of the discounts the card provides are for sales of tangible personal property, the health card is more than simply a means to discount those sales. If the card's only purpose were to discount retail sales, it would be governed by K.A.R. 92-19-16a(g) and its sale could be presumed taxable. That regulation provides that:

Sales of coupon books and similar materials that entitle the holder to a discount or other price advantage on the purchase of goods or services shall be presumed to have value in addition to the coupons or discounts contained in them and shall be taxable as sales of tangible personal property, except when [sold] by a nonprofit organization that treats the receipts … as a donation.

Because this card does more than discount tangible personal property (it also provides discounts on medical-provider services), it is not treated as a taxable coupon book, and the charges for it are not subject to Kansas sales tax.

What this means for you

Sellers of discount / membership cards

A card that provides discounts on a mix of services and goods — not merely a booklet of retail coupons — is generally not taxable in Kansas. Both the enrollment fee and recurring dues-style charges for such a card were held nontaxable here because the payment isn't for tangible personal property or an enumerated taxable service.

Watch the coupon-book line

If a card or booklet's only function is to discount retail purchases of goods, it can be presumed taxable as a sale of tangible personal property under K.A.R. 92-19-16a(g) (unless sold by a nonprofit treating the receipts as a donation). The health card avoided that because it did more than discount goods.

The underlying discounted purchases still follow normal rules

This ruling is about the charge for the card. When a cardholder later buys a taxable good at a discount, the retailer still charges sales tax on the discounted price under the usual coupon rules.

Common questions

Q: Are the sign-up fee and monthly charges for the health discount card taxable?
A: No. The Department ruled that neither the initial sign-up fee nor the recurring monthly charges are subject to Kansas sales tax.

Q: Why isn't the card taxable like a coupon book?
A: A coupon book whose only purpose is to discount retail goods can be presumed taxable under K.A.R. 92-19-16a(g). This card does more — it also provides discounts on medical-provider services — so it isn't treated as a mere coupon book.

Q: What kinds of service charges are taxable in Kansas?
A: The enumerated taxable services include dues, admission charges, and fees for participation in sports and recreation, among others. A payment for a discount card is not one of these.

Q: If a member uses the card to buy a taxable item at a discount, is that purchase taxed?
A: Yes. That's a separate transaction; the retailer charges sales tax on the discounted purchase of the taxable good under the normal coupon rules.

Q: Does this ruling apply to my business?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it illustrates how the Department distinguishes discount-membership cards from taxable coupon books.

Citations and references

• K.A.R. 92-19-16a(g) — presumes that coupon books and similar materials that only discount goods or services are taxable as sales of tangible personal property (unless sold by a nonprofit treating receipts as a donation). The Department held the health card is more than such a coupon book.
• Enumerated taxable services — Kansas taxes certain services (dues, admission charges, fees for participation in sports and recreation, etc.); a health-card charge is not among them.
• 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-2003-008

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 7, 2003

XXXX
XXXX
XXXX

RE: Your letter of January 29, 2003

Dear XXXX:

Thank you for your recent letter. You work for a multi-level marketing company that sells heath products in Kansas through independent contractors. Your company currently collects and remits Kansas sales tax on behalf of the independent contractors, under an agreement with the department of revenue.

Your company is considering selling heath cards that allow the holder to receive discounts from medical care providers and retailers. Currently, more than 300,000 heath care providers and retailers participate in the plan. There is a single, initial sign-up fee for the card, plus recurring monthly charges. You ask if these customer charges are subject to Kansas sales tax.
Please be advised that the charges for the health cards are not subject to Kansas sales tax. This includes all customer charges, including both the sign up fee and the recurring monthly charges.

Kansas retailers' sales tax is imposed on sales of tangible personal property and on sales of certain enumerated services, which include dues, admission charges, fees for participation in sports and recreation, and so forth. Payment for the heath card is not a payment for any of these taxable services. In addition, while some of the discounts that the card provides may be for sales of tangible personal property, the heath cards is more than simply a means to discount sales of tangible personal property. If the card's purpose were only to discount retail sales, it would be subject to the rules set forth in K.A.R. 92-19-16a(g), and sales of the card could be presumed to be taxable. This regulation provides:

(g) Sales of coupon books and similar materials that entitle the holder to a discount or other price advantage on the purchase of goods or services shall be presumed to have value in addition to the coupons or discounts contained in them and shall be taxable as sales of tangible personal property, except when sales of such a book is by a nonprofit organization that treats the receipts from the sales as a donation. If a coupon is redeemed from a coupon book or other material sold at retail, the retailer who redeems the coupon shall charge sales tax in accordance with the requirements for sales made with coupons that are set forth in subsection (d).

I hope that I have clearly answered your questions. If you need to discuss anything further, 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: 03/05/2003 Date Modified: 03/05/2003

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