Is a lease of tangible personal property to a Federal Home Loan Bank exempt from Kansas retailers' sales tax?

Plain-English summary

A lessor asked whether "a lease of tangible personal property to the [ ]" — a Federal Home Loan Bank — "is exempt from Kansas retailers' sales tax." The bank "claims to be exempt from sales tax on the lease vehicle due to the Federal Home [Loan] Bank Act 12, 1433."

Federal law, not a Kansas exemption, controls. The Department explained that "[u]nder federal law, a state may not subject the following entities to sales tax," and listed the immunized federal instrumentalities together with the sections that grant the immunity:

• Federal Home Loan Banks — 12 U.S.C. §1433
• Federal Reserve Banks — 12 U.S.C. §531
• Federal National Mortgage Associations — 12 U.S.C. §1723a(c)
• Federal Financing Banks — 12 U.S.C. §2290
• Production Credit Associations — 12 U.S.C. §2077
• Farm Credit Banks — 12 U.S.C. §2023
• Federal Land Bank Associations — 12 U.S.C. §2098

The holding. Because the customer is a Federal Home Loan Bank — one of the entities Congress has placed beyond the reach of state sales tax — the Department concluded that "your lease to the [ ] is exempt from Kansas retailers' sales tax."

Bottom line: the exemption here does not come from a subsection of the Kansas sales tax act; it comes from federal statutes that forbid states from taxing these particular federal financial institutions. A sale or lease to one of the listed entities is exempt as a matter of federal law.

What this means for you

Businesses that sell or lease to federal financial institutions

When your customer is one of the federally immunized entities — a Federal Home Loan Bank, Federal Reserve Bank, Fannie Mae, Federal Financing Bank, Production Credit Association, Farm Credit Bank, or Federal Land Bank Association — the sale or lease is exempt from Kansas sales tax because a federal statute bars the state from taxing it. Document which entity you dealt with and the federal section that immunizes it.

Confirm the customer really is a listed federal entity

The immunity is specific to the entities Congress named. An ordinary bank, a state-chartered institution, or a private company with a similar name is not covered. Verify the customer's federal status before treating a transaction as exempt.

This is different from a Kansas statutory exemption

Because the exemption rests on federal law, it does not depend on a Kansas exemption certificate tied to a K.S.A. 79-3606 subsection. Keep documentation of the entity's federal-instrumentality status to support the exempt treatment on audit.

Common questions

Q: Is leasing a vehicle to a Federal Home Loan Bank taxable in Kansas?
A: No. The Department ruled the lease "is exempt from Kansas retailers' sales tax" because "[u]nder federal law, a state may not subject" a Federal Home Loan Bank to sales tax (12 U.S.C. §1433).

Q: Which other entities get this federal immunity?
A: The ruling lists Federal Reserve Banks, Federal National Mortgage Associations, Federal Financing Banks, Production Credit Associations, Farm Credit Banks, and Federal Land Bank Associations, each with its own immunizing section of Title 12.

Q: Does a Kansas exemption certificate create this exemption?
A: No. The exemption comes from federal statutes barring state taxation of these entities, not from a Kansas exemption subsection — though you should keep records showing the customer's federal status.

Citations and references

• 12 U.S.C. §1433 — exempts Federal Home Loan Banks from state taxation, the basis for exempting the lease at issue.
• 12 U.S.C. §531; §1723a(c); §2290; §2077; §2023; §2098 — the federal sections immunizing, respectively, Federal Reserve Banks, Federal National Mortgage Associations, Federal Financing Banks, Production Credit Associations, Farm Credit Banks, and Federal Land Bank Associations from state sales tax, as listed by the Department.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-201

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 20, 1999

XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

I have been asked to respond to your letter dated August 30, 1999. In it, you ask if a lease of tangible personal property to the XXXXXXXXXXXXXX is exempt from Kansas retailers’ sales tax.

You state, “The bank claims to be exempt from sales tax on the lease vehicle due to the Federal Home Bank Act 12, 1433.”

Under federal law, a state may not subject the following entities to sales tax: Federal Home Loan Banks (12
U.S.C. §1433), Federal Reserve Banks (12 U.S.C. §531), Federal National Mortgage Associations (12 U.S.C. §1723a(c)), Federal Financing Banks (12 U.S.C. §2290), Production Credit Associations (12 U.S.C. §2077), Farm Credit Banks (12 U.S.C. §2023), or Federal Land Bank Associations (12 U.S.C. §2098).

It is the opinion of the Kansas Department of Revenue that your lease to the XXXXXXXXXXXXXXXXXX is exempt from Kansas retailers’ sales tax.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC: mdc

Date Composed: 09/28/1999 Date Modified: 10/11/2001

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