Can an entity that is not a nonprofit hospital get a project exemption certificate to build a medical office complex tax-free?

Plain-English summary

An organization asked whether it could obtain a project exemption certificate — the document that lets a construction project buy materials and services free of Kansas sales tax — for building a medical office complex, relying on the nonprofit hospital exemption.

The Department quoted K.S.A. 79-3606(b), which exempts "all sales of tangible personal property or service, including the renting and leasing of tangible personal property purchased directly by ... a public or private nonprofit hospital ... and used exclusively for ... hospital ... purposes," except when the hospital uses the items in a separately taxable business.

Applying that language, the Department concluded that because the requesting entity is not a nonprofit hospital, it would be inappropriate to issue a project exemption certificate for the construction of the medical office complex. In short, the hospital exemption belongs to nonprofit hospitals; a medical office complex built by an entity that isn't one cannot use it.

What this means for you

If you're planning a healthcare construction project in Kansas and hope to build it tax-free, confirm the exemption actually fits the owner.

• The exemption is entity-specific. 79-3606(b) runs to a public or private nonprofit hospital. Being health-care-related isn't enough — the purchaser must be a qualifying nonprofit hospital.
• A medical office complex isn't automatically a hospital. The Department refused the certificate because the entity was not a nonprofit hospital, regardless of the medical nature of the building.
• No qualifying entity, no project exemption certificate. Without a party that qualifies for the underlying exemption, the Department won't issue the certificate that would let the project buy materials and services tax-free.
• "Used exclusively for hospital purposes" and the taxable-business exception matter too. Even a nonprofit hospital's exemption is limited to direct purchases used exclusively for hospital purposes and does not extend to items used in a separately taxable business.

Common questions

Can a medical office complex be built tax-free under the hospital exemption?
Not by an entity that is not a nonprofit hospital. The Department said it would be inappropriate to issue a project exemption certificate for the construction because the requesting entity is not a nonprofit hospital.

Who qualifies for the 79-3606(b) exemption?
A public or private nonprofit hospital, for property and services it purchases directly and uses exclusively for hospital purposes (excluding items used in a separately taxable business).

What is a project exemption certificate?
It is the certificate that allows a construction project to purchase materials and services without paying Kansas sales tax. It can only be issued when the project qualifies for an underlying exemption — here, it did not.

Does being a healthcare provider make an entity a "hospital" for this exemption?
No. The exemption is limited to nonprofit hospitals. An entity that provides or houses medical services but is not a nonprofit hospital does not qualify.

Citations and references

• K.S.A. 79-3606(b) — exempts sales of tangible personal property or services (including rentals and leases) purchased directly by a public or private nonprofit hospital and used exclusively for hospital purposes, except when used in a separately taxable business; because the requesting entity was not a nonprofit hospital, no project exemption certificate could be issued for the medical office complex.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1999-27.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 18, 1999

TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT

Dear Mr. TTTTTTT:

We wish to acknowledge receipt of your letter dated February 15, 1999, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(b) exempts from sales tax: "all sales of tangible personal property or service, including the renting and leasing of tangible personal property purchased directly by......a public or private nonprofit hospital...and used exclusively for...hospital...purposes, except when: (1) Such...hospital is engaged or proposes to engage in any business specifically taxable under the provisions of this act and such items of tangible personal property or service are used or proposed to be used in such business,..."

Please be advised that since TTTTTTTTTTTT, is not a nonprofit hospital, it would be inappropriate for a project exemption certificate to be issued for the construction of the medical office complex.

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 in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Date Composed: 03/01/1999 Date Modified: 10/11/2001

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