Why must a school student organization collect Kansas sales tax on its concession-stand sales?

Plain-English summary

The Department responded to a letter (addressed to Governor Bill Graves) from someone frustrated that a student organization's concession-stand sales are subject to Kansas sales tax. The Department explained that the state is not taxing the non-profit itself — it is requiring the group to collect sales tax on its retail sales, the same as any other retailer.

The Department made several points:

• Long history. "Student concession stand sales have been taxed for more than 60 years in Kansas." A 1937 provision that had exempted such sales when the profits were used exclusively for educational expenditures "is no longer Kansas law" (State Tax Comm. v. Board of Education, 146 Kan. 722, 73 P.2d 49 (1937)). Churches, like schools, "are required to collect sales tax when they act as retailers."
• Fairness/neutrality rationale. Requiring government, schools, churches, and non-profits to collect tax when they run taxable businesses avoids marketplace inequality. Examples: KU students pay the same tax at the Union Bookstore as at nearby commercial bookstores; universities pay sales tax on dormitory construction materials like private competitors; non-profit hospitals (exempt on their purchases) still collect tax on gift-shop and staff sales. The Legislature had recently exempted certain non-profit sales — "sales by PTA's, cookie sales by Girl Scouts, and a number of other sales by certain exempt groups."
• "Why is it legal to tax a non-profit?" The Department answered that "the state is not taxing the non-profit organization. It is requiring them to collect sales tax on their retail sales, just like other retailers."
• Factoring. Kansas lets vendors "factor" tax out of tax-included receipts. The vendor's price board must state "Sales tax included," and the vendor computes tax by "first dividing the total receipts by one plus the state and local sales tax rate stated as a decimal"; the tax owed is total receipts minus that result. Remitting that amount means "they are remitting sales tax that they have collected---they are not paying the tax from their funds."
• Change is legislative. If the group wants concession sales exempted, it should work with state representatives; the Legislature could broaden the recent non-profit exemptions to include school concession-stand sales.

What this means for you

Schools, churches, and non-profits

When you make taxable retail sales — including concession stands and similar fund-raisers — you must register and collect Kansas sales tax, just like a commercial retailer. Being a non-profit does not exempt those sales unless the Legislature has specifically exempted them.

It's the sale that's taxed, not you

The sales tax is collected from your customers and remitted to the state. You are a collection agent, not the taxpayer, so remitting it does not come out of your own funds.

Use factoring for fast-moving sales

For crowd sales, you can post "Sales tax included," round prices to convenient increments, and then back the tax out of your gross receipts by dividing by one plus the combined state and local rate. This is a legitimate way to compute the tax you must remit.

Want an exemption? Go to the Legislature

Some non-profit sales (like PTA sales and Girl Scout cookies) have been exempted by statute. Expanding that to concession sales would require legislative action, so raise it with your elected officials.

Common questions

Q: Does a school or non-profit have to collect sales tax on concession sales?
A: Yes. Such retail sales have been taxable in Kansas for over 60 years; the group must collect and remit the tax like any other retailer.

Q: Isn't the state taxing our non-profit?
A: No. It requires you to collect tax from your customers on retail sales — the tax is not paid from your organization's funds.

Q: How do we handle tax on fast concession sales?
A: Use factoring: post "Sales tax included," and compute the tax by dividing total receipts by one plus the combined state and local rate; the difference is the tax to remit.

Citations and references

• State Tax Comm. v. Board of Education, 146 Kan. 722, 73 P.2d 49 (1937) — cited by the Department; the 1937 exception it reflects (exempting sales whose profits went exclusively to educational expenditures) is no longer Kansas law.
• The letter cites no current statute number for its holding. It explains that schools, churches, and non-profits must collect sales tax on their taxable retail sales; describes the "factoring" method for tax-included receipts; and notes that recent legislative exemptions (PTA sales, Girl Scout cookie sales) do not extend to school concession-stand sales, so any further exemption would require legislative action.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1998-22

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

November 20, 1998

XXXX
XXXX
XXXX

RE: Your letter to Governor Bill Graves received November 5, 1998

Dear XXXX:

I have been asked to respond to your letter addressed to Governor Graves. In it, you express frustration with sales taxation of certain concession stand sales made by one of your student organizations.

Student concession stand sales have been taxed for more than 60 years in Kansas. I have enclosed a copy of State Tax Comm. v. Board of Education, 146 Kan. 722, 73 P.2d 49 (1937). Please note that the 1937 exception to the imposition is no longer Kansas law. This 1937 provision exempted sales when profits from the sales were used exclusively for educational expenditures. Your letter also asks about sales tax collection by Kansas churches. Like Kansas schools, churches are required to collect sales tax when they act as retailers.

Requiring government, schools, churches, and non-profit entities to collect sales tax when they engage in taxable businesses has a long history of support in Kansas. For example, University of Kansas students have always paid the same sales tax whether they shop at the Union Bookstore or at any of the competing commercial bookstores near campus. In Kansas, universities are required to pay sales tax on materials for dormitory construction and repairs, just like their private competitors. Kansas public utilities bear the same sales tax burdens as their private counterparts. While nonprofit hospitals are exempt from paying sales tax on their purchases, they must collect sales tax on sales made at their gift shops and on sales made to their staff members. Until recently, the Kansas legislature has avoided creating inequality in the marketplace by exempting sales made by non-profit groups that compete with private enterprise. During the last session, the legislature exempted sales by PTA’s, cookie sales by Girl Scouts, and a number of other sales by certain exempt groups.

You ask: “Why is it legal for the State to tax a non-profit organization?” In your case, the state is not taxing the non-profit organization. It is requiring them to collect sales tax on their retail sales, just like other retailers. Kansas law allows vendors to factor the sales tax from their concession stand receipts. To do this, the vendor’s price board must inform the public “Sales tax included.” “Factoring” means that on tax included sales, such as vending machine sales and on most concession stand sales, vendors figure their selling price with tax included and round off that amount to the next higher five or ten cent increment. This becomes the customer charge and allows change to be made quickly for large crowds. It avoids the inconvenience of figuring tax and making change in pennies.

Sales tax on such factored receipts is determined by first dividing the total receipts by one plus the state and local sales tax rate stated as a decimal. The sales tax that should be paid to the state is the difference between the total receipts minus the result of this division. When your group remits this amount as state and local sales tax, they are remitting sales tax that they have collected---they are not paying the tax from their funds.

If you continue to have concerns with sales tax being imposed on your school’s concession sales, you might wish to work with your state representatives to change the law. As noted above, the legislature has recently exempted sales made by a number of nonprofit organizations, and might wish to broaden those exemptions to include school concession stand sales. If you have any additional questions or wish to discuss this matter further, please call me at (785) 296-4008.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

cc: Governor Bill Graves, Representative XXXX
Enclosures to Mr. XXXX & Rep. XXXX

Date Composed: 11/24/1998 Date Modified: 10/10/2001

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