Are charges for children to ride a nonprofit's replica train at carnivals and community events subject to Kansas sales tax?

Plain-English summary

A nonprofit organization operated a small replica train and charged children to ride it at school carnivals, "Wild West Days," "Prairie Days," and other community events. It asked whether the ride charges are subject to Kansas sales tax. The Department said yes.

Ride charges are taxable recreational fees. "Amusement rides are taxed at K.S.A. 79-3603(m)." That subsection taxes "the gross receipts received from fees and charges by . . . organizations and businesses for participation in sports, games and other recreational activities," subject to listed exceptions. The Department reasoned that "[c]arnival rides and other similar rides, including rides on the non-profit club's replica train, are considered to be recreational activities" — quoting Webster's definition of recreation as "a means or refreshment or diversion." So "charges for rides on the non-profit club's train are taxable."

The admissions argument (and why it fails). The club argued the rides were not taxable under K.S.A. 79-3603(e), which taxes admissions to places of amusement, entertainment, or recreation. The Department noted this was "similar to the one that was raised in Grauer v. Director of Revenue, 193 Kan. 605, 396 P.2d 260 (1964)," where the Kansas Supreme Court accepted a bowling alley's argument that bowling charges could not be taxed under (e) as admissions. But that very holding "prompted the enactment of K.S.A. 79-3603(m) and K.S.A. 79-3603(n)," which tax certain dues and participation fees for sports and recreation. In other words, the gap the club was trying to use had already been closed by the (m)/(n) participation-fee taxes.

No exception applied. The recreational-fee tax has exceptions for a political subdivision, an organization exempt from property tax under paragraph Ninth of K.S.A. 79-201, and a youth recreation organization exclusively serving persons 18 or younger that is exempt under section 501(c)(3). The Department "attempted to confirm such [a property-tax] exemption internally for the non-profit club, but could not do so," and found the club — "while charitable and benevolent" — "is not a 'youth recreation organization exclusively providing services to persons 18 years of age or younger.'" So nothing in the facts established an exemption, though "[t]his opinion could change if you provide additional documentation that brings the organization within an exemption or exception."

Bottom line: a nonprofit's amusement-ride charges are taxable participation fees under K.S.A. 79-3603(m). Being a charitable nonprofit is not enough — the club would have to fit a specific exception (a qualifying property-tax exemption or a youth-only recreation organization) to avoid the tax.

What this means for you

Nonprofits running rides, games, or recreational activities

Charges for participation in recreational activities — including carnival-style rides — are taxable under K.S.A. 79-3603(m). Being a charitable nonprofit does not exempt you. You must fit a specific exception, such as qualifying for property tax exemption under paragraph Ninth of K.S.A. 79-201 or being a youth recreation organization exclusively serving those 18 and under.

Event organizers and festival vendors

Do not assume ride or activity fees are exempt "admissions." The legislature enacted the participation-fee taxes in subsections (m) and (n) precisely to reach charges that escaped the admissions tax. Plan to collect sales tax on recreational participation fees unless a documented exception applies.

Documenting an exception

If you believe your organization qualifies for an exception, gather the supporting documentation. The Department indicated the outcome could change with proof that the organization comes within an exemption or exception.

Common questions

Q: Are a nonprofit's carnival-ride charges taxable in Kansas?
A: Yes. The Department ruled that charges for rides — including a nonprofit club's replica-train rides — are taxable participation fees for recreational activities under K.S.A. 79-3603(m).

Q: Can the rides be treated as nontaxable "admissions" under 79-3603(e)?
A: No. That admissions argument (which succeeded for bowling in Grauer v. Director of Revenue) is what led the legislature to enact the participation-fee taxes in subsections (m) and (n) that reach these charges.

Q: Does being a charitable nonprofit make the ride fees exempt?
A: Not by itself. The organization must fit a specific exception — a property-tax exemption under paragraph Ninth of K.S.A. 79-201, or a youth recreation organization serving only those 18 and under. The club met neither on the facts provided.

Citations and references

• K.S.A. 79-3603(m) — taxes gross receipts from fees and charges for participation in sports, games, and other recreational activities; the basis for taxing the replica-train ride charges. Its exceptions cover political subdivisions, organizations exempt from property tax under paragraph Ninth of K.S.A. 79-201, and qualifying youth recreation organizations.
• K.S.A. 79-3603(e) — taxes admissions to places providing amusement, entertainment, or recreational services; the subsection the club argued applied (as in Grauer v. Director of Revenue), but which did not shield the ride fees.
• K.S.A. 79-3603(n) — enacted (with (m)) after Grauer to tax certain dues and participation fees; the ruling references its exception for organizations exempt from property tax under paragraph Ninth of K.S.A. 79-201.
• K.S.A. 79-201 — the property tax exemption statute; its paragraph Ninth is the qualifying test for the recreational-fee exception, which the Department could not confirm the club met.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-218

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 7, 1999

XXXX
XXXX
XXXX

RE: Your letter of September 23, 1999

Dear Mr. XXXX:

Thank you for your letter that we received late last month. In it, you ask if charges for children to ride on a small replica train are subject to Kansas sales tax. The train is owned by a non-profit entity and is operated a school carnivals, Wild West Days, Prairie Days, and at other community events. Please be advised that these charges are subject to Kansas sales tax.

Amusement rides are taxed at K.S.A. 79-3603(m). The imposition provisions in subsection (m) that are relevant to this discussion impose sales tax on:

the gross receipts received from fees and charges by . . . organizations and businesses for participation in sports, games and other recreational activities, but such tax shall not be levied and collected upon the gross receipts received from: (1) Fees and charges by any political subdivision, by any organization exempt from property taxation pursuant to paragraph Ninth of K.S.A. 79-201, and amendments thereto, or by any youth recreation organization exclusively providing services to persons 18 years of age or younger which is exempt from federal income taxation pursuant to section 501(c)(3) of the federal internal revenue code of 1986, for participation in sports, games and other recreational activities. . .

Carnival rides and other similar rides, including rides on the non-profit club’s replica train, are considered to be recreational activities. Webster’s defines “recreation” as “a means or refreshment or diversion.” Accordingly, charges for rides on the non-profit club’s train are taxable.

You claim that these rides are not subject to Kansas sales tax under K.S.A. 79-3603(e), which imposes sales tax on admissions to a place providing amusement, entertainment or recreational service. Your argument is similar to the one that was raised in Grauer v. Director of Revenue, 193 Kan. 605, 396 P.2d 260 (1964). In Gauer, the Kansas Supreme Court accepted a bowling alley’s argument that charges for bowling could not be taxed under K.S.A. 79-3603(e) as charges for admissions. This holding prompted the enactment of K.S.A. 79-3603(m) and K.S.A. 79-3603(n). These two subsections impose sales tax on certain dues and on certain fees for participation in sports and recreation.

You do not claim that the non-profit club qualifies under the first exception contained in K.S.A. 79-3603(n) ---- that is the exception for “any organization exempt from property taxation pursuant to paragraph Ninth of K.S.A. 79-201, and amendments thereto.” I attempted to confirm such an exemption internally for the non-profit club, but could not do so. As far as your other contention, I know that the non-profit club, while charitable and benevolent, is not a “youth recreation organization exclusively providing services to persons 18 years of age or younger.”

Accordingly, the factual recitation in your letter contains nothing that establishes that the non-profit club is exempt from charging sales tax on the train rides. This opinion could change if you provide additional documentation that brings the organization within an exemption or exception.

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) 296-3081 if you need to discuss this matter further.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 10/18/1999 Date Modified: 10/11/2001

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