Does a 501(c)(3) foundation qualify for a Kansas sales tax exemption because similar named health charities are exempt?

Plain-English summary

A 501(c)(3) foundation asked whether it qualifies for a Kansas sales tax exemption, pointing out that the legislature had extended a specific exemption to a list of similar health-related charities.

The named-charity exemption is a closed list. The Department noted that K.S.A. 79-3606(vv) grants a sales tax exemption to specifically named entities — the "American Heart Association, Kansas Affiliate, Inc., the Kansas Alliance for the Mentally Ill, Inc., the Kansas Mental Illness Awareness Council, the American Diabetes Association Kansas Affiliate, Inc., the American Lung Association of Kansas, Inc. and, the Kansas chapters of the Alzheimer's Disease and Related Disorders Association, Inc." Beyond those, the Kansas sales tax statutes "grant exemptions to schools, educational institutions, hospitals, and political subdivisions," and "[n]one of these general exemptions encompass nonprofit organizations like yours."

Exemptions are strictly construed. The Department explained that "[t]ax exemption statutes are strictly construed," so exemptions "will not be read to extend exemption to entities that are not clearly within the terms of the exemption." The specific exemptions for similar organizations "show[] that the Kansas legislature intended to exempt the named entities, but not others."

The holding. "The [] Foundation is not exempt from Kansas sales tax. You must continue to pay sales tax on your purchases of office supplies, phone services, and other purchases that are subject to Kansas sales tax."

Bottom line: having a mission similar to exempt health charities — and even being a 501(c)(3) — does not make a foundation exempt; only the specifically named entities in K.S.A. 79-3606(vv) qualify, and this foundation must keep paying sales tax on its purchases.

What this means for you

The 79-3606(vv) exemption names specific entities

The exemption lists particular health-related charities by name. An organization not on that list does not qualify under 79-3606(vv), regardless of how similar its purpose is.

Strict construction blocks "similar organization" arguments

Because tax exemptions are strictly construed, the legislature's decision to name specific charities is read as excluding everyone else. A comparable mission is not enough.

501(c)(3) status alone does not exempt Kansas purchases

Federal tax-exempt status is a federal matter. It does not, by itself, exempt an organization from paying Kansas sales tax on its purchases.

The foundation pays tax on its purchases

The Department told the foundation to keep paying Kansas sales tax on office supplies, phone services, and other taxable purchases.

Common questions

Q: Is a 501(c)(3) foundation exempt from Kansas sales tax?
A: Not on these facts. Federal 501(c)(3) status does not create a Kansas sales tax exemption, and this foundation did not fit any Kansas exemption.

Q: Why didn't the 79-3606(vv) exemption for similar health charities apply?
A: That exemption names specific entities. Because exemptions are strictly construed, naming those charities means the legislature intended to exempt only them, not similar organizations.

Q: Do the exemptions for schools, hospitals, or political subdivisions help?
A: No. The Department said none of those general exemptions encompass a nonprofit organization like this foundation.

Q: What must the foundation do?
A: Continue paying Kansas sales tax on its purchases of office supplies, phone services, and other taxable items.

Citations and references

• K.S.A. 79-3606(vv) — grants a Kansas sales tax exemption to a specific list of named health-related charities; because it is strictly construed, it does not extend to other, similar nonprofit organizations.
• Strict construction of tax exemptions — Kansas construes exemption statutes strictly, so an entity not clearly within the terms of an exemption is not exempt.
• K.A.R. 92-19-59 — the regulation authorizing private letter rulings; this ruling was issued under it and binds the Department only as to the requesting taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-196

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 12, 1998

XXXX
XXXX
XXXX

RE: Your letter request of October 30, 1998

Dear XXXX:

I have been asked to respond to your letter that we received earlier this month. You ask for a determination of whether the XXXX Foundation is exempt from Kansas sales tax. The foundation has been recognized as a 501(c)(3) organization by the Internal Revenue Service.

You point out that the Kansas legislature has extended specific sales tax exemption to the American Heart Association, Kansas Affiliate, Inc., the Kansas Alliance for the Mentally Ill, Inc., the Kansas Mental Illness Awareness Council, the American Diabetes Association Kansas Affiliate, Inc., the American Lung Association of Kansas, Inc. and, the Kansas chapters of the Alzheimer's Disease and Related Disorders Association, Inc. These exemptions are found at K.S.A. 79-3606(vv). In addition to exempting these named entities, the Kansas sales tax statutes grant exemptions to schools, educational institutions, hospitals, and political subdivisions. None of these general exemptions encompass nonprofit organizations like yours.

Tax exemption statutes are strictly construed. This means that exemptions will not be read to extend exemption to entities that are not clearly within the terms of the exemption. In the case of the XXXX Foundation, the specific exemptions for similar organizations shows that the Kansas legislature intended to exempt the named entities, but not others. The XXXX Foundation is not exempt from Kansas sales tax. You must continue to pay sales tax on your purchases of office supplies, phone services, and other purchases that are subject to Kansas sales tax.

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 by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination. Please call me if you have any additional questions.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 11/23/1998 Date Modified: 10/10/2001

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