Why did Kansas start assigning Tax-Exempt Identification Numbers and numbered certificates to exempt entities, effective January 1, 2005?

Plain-English summary

Under Sections 16 and 21 of 2004 House Bill 2375, effective January 1, 2005, entities exempt from sales tax under K.S.A. 79-3606 must give retailers a Tax-Exempt Identification Number issued by the Department -- on a special numbered exemption certificate -- in addition to their name and address.

• Beginning November 2004, the Department issued each Kansas-based exempt entity a numbered Tax Exemption Certificate.
• After January 1, 2005, retailers may no longer accept blank certificates from these entities; they must keep a copy of the numbered, entity-specific certificate.
• Only direct purchases -- billed directly to the entity and paid with the entity's check or voucher -- are exempt. Purchases by employees with personal funds are TAXABLE.
• The number is separate from a Kansas Sales Tax Registration Number.
• The new procedure does not apply to farmers, federal government purchases, or manufacturing/processing and other use-based exemptions.
• Out-of-state exempt entities were not initially issued a number and instead complete the redesigned Designated or Generic Exemption Certificate (Form ST-28).

The notice lists the covered entities (state and local government, nonprofit hospitals and schools, museums, PTAs, religious organizations, and more). (Companion Notice 04-12 later announced the certificates had been issued.)

What this means for you

If you are a retailer, after January 1, 2005 you must get a numbered Tax-Exempt Entity Exemption Certificate from a Kansas exempt customer -- a blank certificate is no longer valid for those entities -- and deny an exemption claim if the entity cannot present its numbered certificate. Remember only direct, entity-paid purchases qualify; do not exempt an employee paying with personal funds. Farmers, the federal government, and manufacturing/use-based exemptions are unaffected.

Common questions

Q: What changed for exempt entities on January 1, 2005?
A: They must provide a Department-issued Tax-Exempt Identification Number on a numbered exemption certificate; blank certificates from Kansas-based entities are no longer accepted.

Q: Are employee purchases with personal funds exempt?
A: No. Only direct purchases billed to the entity and paid with its check or voucher are exempt; employee personal-fund purchases are taxable.

Q: Does this apply to farmers or the federal government?
A: No. The numbered-certificate procedure does not apply to farmers, federal government purchases, or manufacturing/processing and other use-based exemptions.

Q: What do out-of-state exempt entities use?
A: They complete the redesigned Designated or Generic Exemption Certificate (Form ST-28), unless they choose to apply for a Kansas exempt-entity number.

Citations and references

• 2004 House Bill 2375, Sections 16 and 21 -- require a DOR-issued exemption number on the exemption certificate, effective January 1, 2005.
• K.S.A. 79-3606 -- the sales-tax exemptions for the listed entities.
• Form ST-28 (Designated or Generic Exemption Certificate) for out-of-state entities; Publication KS-1520 (Exemption Certificate Guide).

Subject

Department to Issue Identification Numbers to Exempt Entities

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 04-10

Original ruling text

Tax Notice Notice 04-10

Department to Issue Identification Numbers to Exempt Entities

Approval Date: 10/21/2004

Kansas Department of Revenue wishes to thank retailers for their time and effort expended as our partners in collecting state and local sales tax and documenting the exempt status of sales made to the various statutorily exempt entities. Recognizing that the scope and number of these exemptions often creates misunderstandings and additional paperwork for retailers, and as a result of new legislation, the department is changing how many exempt entities will claim their exemption effective January 1, 2005. We believe the changes to be made will simplify the handling of exemption requests for you and your employees and also assist in deterring abuses. To quickly and easily document the exempt status of sales to exempt entities, the department will assign a unique Tax Exempt Identification Number and issue a special Tax Exemption Certificate containing this number to known Kansas exempt entities.

This new procedure is in accordance with the provisions of Sections 16 and 21 of 2004 House Bill 2375 that will become effective January 1, 2005. This legislation requires entities and organizations exempt from sales tax under K.S.A. 79-3606 (listed on page 2 of this notice) to provide an identification number issued to the entity by the Department of Revenue on an exemption certificate in addition to its name and address. Beginning in November 2004, the department will begin issuing to all Kansas-based tax-exempt entities an exemption certificate that will assign a unique tax-exempt number to each entity. Beginning January 1, 2005, this new certificate must be presented to the retailers for the purchase to be tax-exempt; blank certificates from these Kansas-based entities will no longer be acceptable for purchases made after January 1, 2005. If you have tax exempt entities making purchases in December using exemption certificates that do not include its new exemption number, please suggest that they contact the department so they will have their new certificate by the effective date.

The new numbered exemption certificate will clearly state the exempt entity's name, its Tax Exempt Identification Number, the types of sales that are exempt and the types of payment that can be accepted to receive the tax exemption. Unless otherwise stated on the certificate, only direct purchases (billed directly to the entity and paid with the entity’s check or voucher) are exempt. Purchases by employees with their personal funds are TAXABLE. Each entity’s numbered certificate will replace the individual certificates currently used by the exempt organizations listed on page 2 of this notice (Nonprofit Museum, Religious Organization, PTA/PTO, etc.).

On or after January 1, 2005, the only change to the retailer’s process for documenting exempt sales to these entities will be to keep a copy of the numbered, entity-specific exemption certificate in your sales tax records, just as you do with the current types of exemption certificates.

The purpose of this new procedure is to control fraudulent tax-exempt purchases and to assist retailers, your sales people and cashiers in identifying exempt entities and easily determining whether a claim for exemption is valid, based on the exempt entity’s status. After January 1, 2005, if one of the entities listed on page 2 requests an exemption and they do not present the department-issued certificate containing a Tax-Exempt Identification Number or have it already on file with you, you must deny the request. The department asks that you advise the purchaser to contact the department for guidance.

Please note that this new exemption procedure will not apply to farmers, to purchases by the federal government, or to the manufacturing and processing related exemptions, or other use-based exemptions. Also, the Tax-Exempt Identification Number is separate and apart from a Kansas Sales Tax Registration Number, format 004-XXXXXXXXX-F0X, required of anyone (including exempt entities) making retail sales of taxable goods, services or admissions in Kansas.

Sales to Exempt Entities not based in Kansas after January 1, 2005.

Many of the exemptions granted under K.S.A. 79-3606 and listed on page 2 apply also to non-Kansas organizations. While a Kansas-based organization must provide its numbered certificate to make an exempt purchase of goods or taxable services in Kansas after January 1, 2005, many non-Kansas exempt organizations will not initially be issued an Exempt Organization ID#. While encouraged to obtain a Kansas Exempt Entity ID# (visit ksrevenue.org to apply), a non-Kansas exempt entity (such as a school located in another state) making a direct purchase in Kansas will simply need to complete an exemption certificate for the retailer. The Designated or Generic Exemption Certificate, Form ST-28, will be redesigned for this purpose and available from our web site later this year.

Taxpayer Assistance.

If you have questions about this notice, please contact the department. Additional information about this process and the revised Exemption Certificate Guide, Publication KS-1520, will be posted our web site as they become available. Additional copies of this and other notices are available from our web site or may be ordered through the department’s voice mail forms request line at (785) 296-4937.

The following entities and organizations will begin receiving their numbered tax exemption certificates from the department beginning in October, 2004. For a copy of the legislation that authorized the exemption number to go (our site or the legislative site) within the policy library.

• State of Kansas and its agencies
• Kansas political subdivisions – cities, counties, townships school districts
• Nonprofit hospitals
• Nonprofit blood, tissue and organ banks
• Nonprofit educational institutions (colleges, universities, trade schools, etc. providing education above grade 12)
• Elementary and secondary schools
• Kansas groundwater management districts
• Rural water districts and water supply districts
• Port authority
• Nonprofit nursing home, assisted living facility, interim care home
• Nonprofit, nonsectarian, comprehensive youth development organizations
• Community-based mental retardation facilities or mental health centers
• Nonprofit public health corporations
• Community action groups/agencies for weatherization of low-income homes
• Nonprofit museums
• Nonprofit historical societies
• Nonprofit zoos
• Public broadcasting stations (radio and TV)
• Nonprofit organizations building Kansas Korean War Memorials
• Parent-Teacher Associations and Organizations
• Contractors preparing meals for the homebound elderly, disabled, indigent or homeless (such as Meals on Wheels)
• Rural volunteer fire fighting organizations
• Kansas chapters of these Medical Education Organizations:
• American Diabetes Association, Kansas Affiliate
• American Heart Association
• Kansas Alliance for the Mentally Ill
• Kansas Mental Illness Awareness Council
• American Lung Association
• Alzheimer’s Disease and Related Disorders Assn., Inc.
• Parkinson’s disease association
• National Kidney Foundation (of KS and Western MO)
• The Cystic Fibrosis Foundation, Heart of America Chapter (effective 1/1/2005)

• Spina Bifida Association (effective 1/1/2005)

• Habitat for Humanity for housing project materials

• Free-Access Radio and TV Stations
• Religious Organizations
• Primary care clinics and health centers serving the medically underserved
• Kansas Academy of Science
• Heartstrings Community Foundation (effective 1/1/2005)
• Domestic violence shelters that are members of the Kansas Coalition against Sexual and Domestic Violence (KCSDV), (effective 1/1/2005)
• Kansas Bioscience Authority - 2004 HB 2647, Section 12, (effective 7/1/2004)

Date Composed: 09/09/2004 Date Modified: 10/22/2004