Does a volunteer nonprofit water-quality corporation qualify for a Kansas sales-tax exemption on its purchases?

Plain-English summary

A volunteer, not-for-profit corporation formed to protect the water quality of a lake asked whether its purchases qualify for a Kansas sales-tax exemption. The Department ruled that they do not — the group must pay sales tax on all of its purchases.

Exemptions are narrow. "Tax exemptions are narrowly construed. This means that a group that claims exemption must clearly qualify for exemption within the plain language of the statute." Some Kansas exemptions name a specific entity; others describe entities in general terms (non-profit hospitals, political subdivisions, nonprofit zoos); some cover only certain purchases and others all purchases.

The one exemption that came close. "Limited exemption is extended to 'quasi-municipal corporations' for labor services expended to construct 'facilities' under K.S.A. 79-3603(p)(3)." Watershed districts organized under K.S.A. 24-1201 qualify as quasi-municipal corporations "since they are authorized by statute to receive and hold funds. K.S.A. 24-1209. Ninth." But that exemption reaches only labor services to construct narrowly defined facilities.

Why this group did not qualify. The Department reviewed the project's bylaws: "The bylaws do not reference K.S.A. 24-1201 et seq., nor do they conform to the statutory requirements contained in K.S.A. 24-1201 et seq." Because it was not organized under those statutes, "it is not a 'quasi-municipal corporation' within the meaning of K.S.A. 79-3602(p)." The Department then checked the "more than 60 additional exemptions" in K.S.A. 79-3606 and could "not find any that encompass the Project or its purchases. Accordingly, the Project must pay sales tax to its vendors on all of its purchases of materials and taxable labor services."

A caution even for real watershed districts. The Department added that watershed districts organized under Kansas law "are only granted a very narrow exemption for tax on certain labor services performed in connection with the construction of new facilities. These watershed districts are not accorded a general exemption for all their purchases."

What this means for you

Volunteer environmental and civic nonprofits

Good works and nonprofit status do not create a Kansas sales-tax exemption. Unless your organization fits within the plain language of a specific statutory exemption, you pay sales tax on your purchases of materials and taxable labor services.

"Watershed" work does not equal a watershed district

The narrow labor-services exemption is tied to being a statutory quasi-municipal corporation — a watershed district actually organized under K.S.A. 24-1201 et seq. A private citizens' group doing watershed-improvement work, without organizing under that statute, does not qualify.

Even qualifying districts get only a sliver

For those that do qualify, the exemption covers only labor services to construct new facilities — not a general exemption for all purchases. Plan for tax on ordinary supplies and materials.

Common questions

Q: Does being a not-for-profit corporation exempt a Kansas group from sales tax?
A: No. Exemptions are narrowly construed; the group must fit a specific statutory exemption. This volunteer water-quality corporation fit none and had to pay tax on all its purchases.

Q: Could it qualify as a "quasi-municipal corporation"?
A: No. That status (which carries only a narrow labor-services exemption) requires organizing as a watershed district under K.S.A. 24-1201 et seq. The group's bylaws neither referenced nor conformed to those statutes.

Q: Do watershed districts get a full exemption on everything they buy?
A: No. Even real watershed districts get only a narrow exemption for certain labor services to construct new facilities — not a general exemption for all purchases.

Citations and references

• K.S.A. 79-3603(p)(3) — extends a limited exemption to "quasi-municipal corporations" for labor services to construct narrowly defined "facilities."
• K.S.A. 24-1201 (et seq.); K.S.A. 24-1209 — the statutes under which watershed districts are organized and authorized to receive and hold funds; the project's bylaws neither referenced nor conformed to them.
• K.S.A. 79-3602(p) — the definition of "quasi-municipal corporation"; the Department found the project was not one.
• K.S.A. 79-3606 — contains more than 60 additional exemptions; the Department found none that encompassed the project or its purchases.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-06

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

January 19, 1999

XXXX
XXXX
XXXX

RE: Your Letter request of November 13, 1998

Dear XXX:

I have been asked to respond to your letter of November 13, 1998 addressed to Bob Clelland. I apologize for the delay in issuing this response.

You ask whether the XXXX Water Quality Project (the “Project”) qualifies for sales tax exemption on its purchases. The Project is a not-for-profit corporation that is organized to protect the water quality of Lake XXXX. Much of the Project’s efforts involve volunteer work to encourage sound agricultural and environmental practices in the XXXX lake watershed.

Tax exemptions are narrowly construed. This means that a group that claims exemption must clearly qualify for exemption within the plain language of the statute. The Kansas sales tax act lists various groups that are exempt from tax. Some statutes identify the exempt entity by name. These include the statute that exempts the American Heart Association, Kansas Affiliate, Inc. and the American Lung Association of Kansas, Inc., among others. Other statutes extend exemption by describing the entity in general terms, such as the exemptions extended to non-profit hospitals, political subdivisions of the state, and nonprofit zoos. Some exemptions are limited to certain purchases while other exemptions extend to all purchases.

Limited exemption is extended to “quasi-municipal corporations” for labor services expended to construct “facilities” under K.S.A. 79-3603(p)(3). Quasi-municipal corporations are government subdivisions that have the authority to receive or hold moneys or funds. Watershed districts organized under K.S.A. 24-1201 qualify as “quasi-municipal corporations,” since they are authorized by statute to receive and hold funds. K.S.A. 24-1209. Ninth. As noted, this exemption extends only to labor services performed to construct facilities for such quasi-municipal corporations. The term “facility” is narrowly defined at K.S.A. 79-3603(p)(3).

I have reviewed the Project’s bylaws and the other documentation that you provided. The bylaws do not reference K.S.A. 24-1201 et seq., nor do they conform to the statutory requirements contained in K.S.A. 24-1201 et seq. The bylaws and the other materials reflect that the Project is a volunteer, non-profit corporation comprised of private citizens who are interested in improving the quality of the lake by watershed management. Because the Project is not organized under K.S.A. 24-1201 et seq., it is not a “quasi-municipal corporation” within the meaning of K.S.A. 79-3602(p) and does not qualify for the limited exemption on labor services that is extended under this part of the Kansas sales tax law. K.S.A. 79-3606 contains more than 60 additional exemptions. I have reviewed these exemptions and cannot find any that encompass the Project or its purchases. Accordingly, the Project must pay sales tax to its vendors on all of its purchases of materials and taxable labor services. Please note that watershed districts organized under Kansas law are only granted a very narrow exemption for tax on certain labor services performed in connection with the construction of new facilities. These watershed districts are not accorded a general exemption for all their purchases.

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 at (785) 296-4008 if you have any additional questions.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 03/03/1999 Date Modified: 10/11/2001

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