Does a nonprofit endowment association qualify as an exempt educational institution in Kansas, and must it still collect sales tax on its own sales?

Plain-English summary

A nonprofit endowment association asked whether it is exempt from Kansas sales tax. The Department explained the 1998 changes to who counts as an exempt "educational institution."

Schools and educational institutions are exempt on purchases. The 1998 Legislature defined an "educational institution" as a nonprofit school, college, or university that offers courses above the twelfth grade and meets statutory requirements — and expanded the definition to also include:

• nonprofit endowment associations and foundations that operate exclusively for the support and benefit of an educational institution;
• nonprofit entities whose principal purpose is to hold receipts from intercollegiate sporting events and to disburse them (with grants and gifts) for the sole benefit of an educational institution's athletic programs;
• nonprofit research organizations whose primary purpose is scholarly investigation and research for the sole benefit of an educational institution; and
• a group of educational institutions operating exclusively for an educational purpose, "such as the NCAA."

Educational institutions can also obtain a project exemption for constructing, equipping, or remodeling buildings other than dormitories, and other property improvements (K.S.A. 79-3602(s)).

This association qualifies on its purchases — but must collect on its sales. The Department found "a basis to support an exemption from Kansas sales/use tax for purchases by the [association] as an educational institution." However, it stressed that the endowment association "would still be obligated to collect the appropriate Kansas sales tax(es) on all their sales of tangible personal property and taxable services, which include, but not be limited to, the annual benefit auction, where you charge admission, serve a meal and sell items which have been donated to you."

Bottom line: as an endowment association operating for the benefit of an educational institution, the organization is exempt on what it buys, but it is still a retailer on what it sells — so it must collect and remit sales tax on its benefit auction (admission, meals, and sales of donated items) and its other taxable sales.

What this means for you

Exemption on purchases is only half the picture

Qualifying as an exempt educational institution frees the association from paying tax on its own purchases. It does not turn the organization's sales tax-free. The two sides are analyzed separately.

Fundraising sales are taxable

A benefit auction is a classic trap. Charging admission, serving a meal, and selling donated items are all taxable retail activities. The association must collect and remit Kansas sales tax on those receipts even though the underlying cause is charitable and the goods were donated.

The 1998 definition is broad

The expanded "educational institution" definition reaches beyond schools themselves to their supporting endowment associations and foundations, athletic-receipt entities, research organizations, and umbrella groups like the NCAA — as long as they operate exclusively for the support and benefit of an educational institution.

Project exemptions for construction

Educational institutions can obtain a project exemption for building, equipping, or remodeling facilities (other than dormitories) and other property improvements. An association planning a construction project should apply for that certificate rather than assume its general exemption covers a contractor's materials.

Common questions

Is our endowment association exempt from Kansas sales tax on purchases?
Yes, if it operates exclusively for the support and benefit of an educational institution, it qualifies as an educational institution and there is a basis for exemption on its purchases.

Do we still charge sales tax at our benefit auction?
Yes. Admission charges, meals, and sales of donated items are taxable. The association must collect and remit the appropriate Kansas sales tax on those receipts.

Does the exemption cover a construction project?
Educational institutions can obtain a separate project exemption for constructing, equipping, or remodeling buildings (other than dormitories) and other improvements under K.S.A. 79-3602(s). Apply for that certificate for a project.

What other organizations count as "educational institutions" now?
Beyond schools, the 1998 definition includes supporting endowment associations and foundations, athletic-receipt entities, nonprofit research organizations, and groups such as the NCAA, when they operate for the sole benefit of an educational institution.

Citations and references

• K.S.A. 79-3602(s) — the 1998 definition of "educational institution," including nonprofit endowment associations and foundations operating exclusively for the support and benefit of an educational institution, and the project-exemption provision for construction and improvements (other than dormitories).
• 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 October 23, 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-1998-178

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 23, 1998

TTTTTTTTTTTTT
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Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated July 6, 1998, regarding the application of Kansas Retailers’ Sales tax.

Schools and educational institutions are exempt from paying sales tax on their purchases. The 1998 legislature defined an "educational institution" to mean a nonprofit school, college, or university that offers educational courses at a level above the twelfth grade and meets certain requirements fixed by the statute. This new definition also includes:

Nonprofit endowment associations and foundations that operate exclusively for the support and benefit of an educational institution;
Nonprofit entities whose principal purpose is to hold receipts from intercollegiate sporting events and to disburse these receipts, as well as grants and gifts, for the sole benefit of the athletic programs of an educational institution;
Nonprofit research organizations whose primary purpose is to pursue scholarly investigation and research for the sole benefit of an educational institution; and
A group of educational institutions that operate exclusively for an educational purpose, such as the NCAA.

Educational institutions are eligible to obtain a project exemption when constructing, equipping, reconstructing, maintaining, repairing, enlarging, furnishing, or remodeling buildings other than dormitories, and when they make other improvements to property. K.S.A. 79-3602(s).

Please be advised, that based upon the information that you presented to this office, there is a basis to support an exemption from Kansas sales/use tax for purchases by the TTTTTTTTTTTTTTTTTTTTTT as an educational institution. However, the endowment association would still be obligated to collect the appropriate Kansas sales tax(es) on all their sales of tangible personal property and taxable services, which include, but not be limited to, the annual benefit auction, where you charge admission, serve a meal and sell items which have been donated to you.

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: 11/04/1998 Date Modified: 10/10/2001

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