Are sales of discount cards and prepaid telephone cards subject to Kansas sales tax, and what use tax applies to promotional magazines?

Plain-English summary

The taxpayer asked how Kansas sales and use tax applies to discount cards, prepaid telephone cards, and a promotional entertainment/discount magazine.

Discount cards are not taxable admissions. K.S.A. 79-3603(e) taxes "the gross receipts received from the sale of admissions to any place providing amusement, entertainment or recreation services." The Department's position is that this statute "does not impose sales tax on the retail sale of discount cards which permit the holder thereof to take advantage of exclusive discounts and savings from products, services and tourist attractions from business[es] throughout the city." A discount card is not an admission to a place of amusement.

Out-of-state prepaid phone cards are not taxed by Kansas. "If the prepaid telephone cards are purchased in a state other th[a]n Kansas, said cards would not be subject to Kansas sales tax."

The promotional magazine owes Kansas use tax. "The entertainment and discount magazine would be subject to the Kansas compensating use tax." If the magazines were already taxed by another state, Kansas use tax applies only "at a rate measured by the difference between 4.9% and the rate by which the previous state tax … was computed." If no other state's tax was imposed, "the entire cost of the [magazines] would be subject to the Kansas use tax of 4.9%."

Bottom line: selling discount cards is not a taxable admission; prepaid phone cards bought outside Kansas are not subject to Kansas sales tax; and the promotional magazine is subject to Kansas compensating use tax — the full 4.9% unless another state's tax was already paid, in which case Kansas takes only the difference.

What this means for you

A discount card is not an "admission"

Because the discount card only entitles the holder to savings from various businesses and attractions — it is not a ticket into a place of amusement — its sale is not taxed under the admissions statute.

Where a phone card is bought matters

Prepaid telephone cards purchased outside Kansas are not subject to Kansas sales tax. (This ruling addresses the out-of-state purchase; where a card is bought in Kansas, Kansas sales tax rules apply.)

Promotional materials you bring in owe use tax

The entertainment/discount magazine you acquire and use is subject to Kansas compensating use tax. Use tax "credits" any tax already paid to another state, so Kansas takes only the difference up to 4.9% — but if no state tax was paid, the full 4.9% applies to the cost.

Keep proof of other-state tax

To claim the reduced (difference-only) Kansas use tax, keep records of the rate and amount of tax paid to the other state. Without that proof, expect to owe the full 4.9%.

Common questions

Do we charge Kansas sales tax when we sell discount cards?
No. The Department's position is that selling discount cards is not a taxable admission under K.S.A. 79-3603(e).

Are prepaid telephone cards taxable?
Prepaid phone cards purchased outside Kansas are not subject to Kansas sales tax. This ruling addresses that out-of-state situation.

What tax applies to the promotional magazines?
Kansas compensating use tax. If another state already taxed them, Kansas takes only the difference up to 4.9%; if not, the full 4.9% applies to the cost.

How is the "difference" use tax computed?
As the difference between the Kansas 4.9% rate and the rate at which the previous state's tax was computed.

Citations and references

• K.S.A. 79-3603(e) — taxes gross receipts from the sale of admissions to places providing amusement, entertainment, or recreation; the Department found it does not reach discount-card sales.
• The ruling states the prepaid-card and use-tax conclusions without citing further numbered statutes; 4.9% is the Kansas compensating (use) tax rate.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued September 25, 1998 by Thomas P. Browne, Jr., Tax Specialist, Office of Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-148

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 25, 1998

TTTTTTTTTT
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Dear Mr. TTTTT:

We wish to acknowledge receipt of your letter dated July 24, 1998, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3603(e) imposes a sales tax: “upon the gross receipts received from the sale of admissions to any place providing amusement, entertainment or recreation services. . .”

It is the position of this department that K.S.A. 79-3603(e) does not impose sales tax on the retail sale of discount cards which permit the holder thereof to take advantage of exclusive discounts and savings from products, services and tourist attractions from business throughout the city of TTTTTTTT.

If the prepaid telephone cards are purchased in a state other that Kansas, said cards would not be subject to Kansas sales tax.

The entertainment and discount magazine would be subject to the Kansas compensating use tax. However, if the manuals have already been subjected to sales tax by another state, then the tax imposed by the Kansas Compensating Tax Act would apply, but at a rate measured by the difference between 4.9% and the rate by which the previous state tax upon the sale was computed. If no other tax was imposed by another state, then the entire cost of the manuals would be subject to the Kansas use tax of 4.9%.

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: 10/06/1998 Date Modified: 10/10/2001

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