Does a nonprofit corporation that runs craft shows to fund charities automatically qualify for a Kansas sales tax exemption?

Plain-English summary

A corporation "organized not for profit, exclusively for charitable and educational purposes" — it promotes craft shows and distributes the proceeds to organizations that qualify under Section 501(c)(3) of the Internal Revenue Code — asked the Department for Kansas sales/use tax exempt status. The answer was no.

Exemptions are read narrowly. The Department explained that "[t]ax exemptions are narrowly construed," meaning "a group that claims exemption must clearly qualify for exemption within the plain language of the statute." Kansas grants exemptions in different ways: some statutes name a specific organization (for example, the American Heart Association, Kansas Affiliate, Inc. and the American Lung Association of Kansas, Inc.), others describe an entity in general terms (non-profit hospitals, political subdivisions, nonprofit zoos), and some exemptions cover only certain purchases while others cover all purchases.

No exemption fit. The Department reviewed the "more than 60 additional exemptions" in K.S.A. 79-3606 and "cannot find any that encompass your organization." Being a nonprofit — even a charitable, educational one that funds other charities — is not, by itself, enough. Kansas has no general exemption for 501(c)(3) status.

The consequence. "Accordingly, your organization must register, collect and remit sales or compensating tax on all sales occurring in the State of Kansas."

Bottom line: federal 501(c)(3) recognition and a charitable mission do not create a Kansas sales tax exemption. An organization must point to a specific Kansas statute that names it or clearly describes it; if none does, it is a taxable retailer like any other.

What this means for you

Nonprofit and charitable organizations

Do not assume 501(c)(3) status or a good cause exempts you from Kansas sales tax. Check whether a specific subsection of K.S.A. 79-3606 names your organization or clearly describes your type of entity. If none does, you must register and collect tax on your sales, including fundraising sales.

Groups that fund other charities

Passing proceeds through to qualifying charities does not make your own sales exempt. The exemption analysis looks at your organization against the statute, not at where the money ultimately goes.

Event organizers and craft-show promoters

Sales you make at events are taxable unless a specific exemption applies to you. Build sales tax collection and remittance into your event pricing and registration.

Common questions

Q: Is a 501(c)(3) nonprofit automatically exempt from Kansas sales tax?
A: No. Kansas exemptions are narrowly construed, and there is no general exemption for 501(c)(3) organizations. You must fit a specific K.S.A. 79-3606 exemption.

Q: The nonprofit gives its profits to charities — does that make its sales exempt?
A: No. The Department found no 79-3606 exemption that covered the organization, so it must collect and remit tax regardless of how the proceeds are used.

Q: What must the organization do?
A: Register with the Department and collect and remit sales or compensating tax on all sales occurring in Kansas.

Citations and references

• K.S.A. 79-3606 — the statute listing Kansas sales tax exemptions (more than 60 subsections); the Department reviewed it and found none that encompass this charitable nonprofit, so no exemption applied.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-241

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 29, 1999

XXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX

Dear XXXXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated August 30, 1999. In your letter you stated the following:

XXXXXXXXXXX is requesting Sales/Use tax exempt status for the state of Kansas.

XXXXXXXX is a corporation organized not for profit, exclusively for charitable and educational purposes. We promote XXXXXXXXXX craft shows with the proceeds of which will be distributed to organizations that qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code or corresponding section of any future Federal tax code.

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.

K.S.A. 79-3606 contains more than 60 additional exemptions. I have reviewed these exemptions and cannot find any that encompass your organization. Accordingly, your organization must register, collect and remit sales or compensating tax on all sales occurring in the State of Kansas.

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

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

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