Can a nonprofit buy materials tax-free to publish a calendar it distributes free of charge?

Plain-English summary

A nonprofit organization recognized by the IRS asked whether it could buy materials and supplies tax-free to publish a 1999 environmental calendar — illustrated by elementary school children's art — that it planned to distribute free of charge to area schools and some to the general public.

The Department described its usual two-step analysis: first, whether the sales tax act imposes tax on the type of transaction; second, whether the act provides an exemption. As a rule, sales tax applies to transfers of tangible personal property, and to services only when specifically enumerated; exemptions exist only as specifically enumerated. After reviewing the request, the Department concluded the organization does not qualify for exemption on its purchases of taxable tangible personal property or services. Nothing in the Kansas Retailers' Sales Tax Act provides an exemption for organizations such as this one, so the Department was without authority to grant the relief requested.

What this means for you

A nonprofit's good purpose — even publishing something it gives away for free — does not by itself make its purchases exempt in Kansas.

• Purchases of taxable goods/services are taxable. Buying paper, printing, and supplies to produce the calendar is a taxable purchase unless a specific statutory exemption applies.
• Free distribution doesn't create an exemption. Giving the finished product away at no charge does not exempt the inputs.
• No general nonprofit exemption. Kansas exemptions are entity- and transaction-specific; an organization must fit one exactly. This organization did not.

If you think your organization matches a specific exemption in the statute, document how you meet its precise terms — a general nonprofit or charitable status is not enough.

Common questions

Can a nonprofit buy materials tax-free to make something it gives away?
Not on this basis. The Department ruled the organization does not qualify for exemption on its purchases of taxable goods or services.

Does distributing the calendar for free matter?
No. Free distribution of the finished product does not exempt the organization's purchases of materials and supplies.

Is there a general nonprofit purchase exemption in Kansas?
No. Exemptions are limited to specifically enumerated organizations and transactions; this organization fit none.

What was the Department's reasoning?
Under its two-step analysis, the purchases are taxable transactions and no enumerated exemption covers organizations such as this one, so it could not grant relief.

Citations and references

• The ruling applies the Department's general two-step taxability/exemption analysis and finds no enumerated exemption in the Kansas Retailers' Sales Tax Act for the organization; it does not cite a specific numbered exemption statute (because none applies).

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1999-97.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

April 12, 1999

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear Ms. XXXXX:

Thank you for your letter of September 25, 1998. Please accept my apologies for the long delay in responding. Your letter states, in pertinent part, as follows:

The XXXXXXXXXXXXXXXXXXXX is recognized by the Internal Revenue Service as a non-profit organization. Our determination letter is dated July 11, 1998 and our I.D. number is XXXXXXXXXX.

The XXXXXXX is preparing to publish a 1999 environmental calendar illustrated by elementary school children’s art. We want to distribute this calendar free of charge to all area schools and a few to the general public.

We think we should be exempt from Kansas sales tax on our purchases of materials and supplies for publishing this free calendar.

In deciding whether a particular transaction is subject to sales tax, a two step analysis is generally necessary. The first step is to determine whether the sales tax act generally imposes tax on the type of transaction in question. The second step is to determine whether the act provides an exemption for the particular type of transaction.

As a rule, sales tax is imposed on all transactions involving the transfer of tangible personal property. With services, however, tax is imposed only on those transactions which are specifically enumerated in the sales tax act. Exemptions for transactions involving either tangible personal property or services are allowed as specifically enumerated.

After reviewing the information provided in your letter, we have concluded your organization does not qualify for exemption from sales tax on its purchase of either tangible personal property or services which are subject to tax. Nothing in the Kansas Retailers’ Sales Tax Act provides exemption for organizations such as yours. As a result, we are without authority to grant you the relief you have requested.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Date Composed: 04/20/1999 Date Modified: 10/11/2001

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