Can a nonprofit museum get a project exemption for exhibitry materials, and are audio-visual purchases exempt?

Plain-English summary

A nonprofit museum or historical society asked how Kansas sales tax applies to a museum exhibitry project and to audio-visual purchases. The answer has two very different parts.

No project exemption for exhibitry materials. A nonprofit museum or historical society does NOT qualify to receive a Project Exemption Certificate — the certificate that would let a contractor, subcontractor, or repairman buy or furnish project materials without sales tax. As a result, materials used by a contractor for a museum exhibitry project are subject to sales tax.

Why — the contractor is the final user. In Kansas, contractors are deemed to be the final user of the materials they use in museum exhibitry projects. So the taxing event occurs when the contractor purchases the materials, or when a contractor/retailer removes materials from inventory to perform the project. The taxable base is the cost of the materials. The contractor pays Kansas sales tax at the time of purchase (or accrues and remits tax on the cost when pulling the materials from inventory).

But direct A/V purchases by the museum are exempt. If the audio-visual software programs are purchased directly by the nonprofit museum or historical society, the purchase is exempt from Kansas sales tax under K.S.A. 79-3606(qq). Likewise, the sale of audio-visual hardware is exempt if purchased directly by the nonprofit museum or historical society. The key is a direct purchase by the museum itself — not a purchase routed through a contractor.

What this means for you

Nonprofit museums and historical societies

Do not expect a Project Exemption Certificate for exhibitry construction/fabrication work — you don't qualify, so a contractor's materials are taxable, with the contractor as the taxpayer. Budget the exhibitry project on a tax-included basis for materials.

Buy audio-visual items directly

Your audio-visual software and hardware can be exempt — but only if you buy them directly under K.S.A. 79-3606(qq). If those A/V items are instead purchased by a contractor and billed through to you, the direct-purchase exemption is lost. Purchase A/V equipment and software in the museum's own name.

Direct-purchase vs. contractor-routed is the dividing line

The recurring theme: the museum's own direct purchases may qualify for exemption, while items a contractor buys to perform a project are taxed to the contractor as the final user. Structure purchases accordingly.

Common questions

Q: Can our nonprofit museum get a Project Exemption Certificate for an exhibitry project?
A: No. A nonprofit museum or historical society does not qualify for a Project Exemption Certificate, so the contractor's materials for the exhibitry project are taxable.

Q: Who pays the tax on the exhibitry materials?
A: The contractor, as the deemed final user — tax is due when the contractor buys the materials or removes them from inventory, based on the cost of the materials.

Q: Are our audio-visual purchases exempt?
A: Yes, if purchased directly by the nonprofit museum or historical society. Both audio-visual software programs and audio-visual hardware are exempt under K.S.A. 79-3606(qq) when bought directly.

Q: What if a contractor buys the A/V equipment for us?
A: The exemption under 79-3606(qq) is for direct purchases by the museum; buying through a contractor generally loses that direct-purchase exemption.

Citations and references

• K.S.A. 79-3606(qq) — exempts audio-visual software programs and audio-visual hardware when purchased directly by a nonprofit museum or historical society.
• The ruling states a nonprofit museum or historical society does not qualify for a Project Exemption Certificate, and that contractors are the deemed final user of materials in museum exhibitry projects (taxed on the cost of materials at purchase or removal from inventory).
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-060

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 9, 2002

TTTTTTTTTTT
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Dear Mr. TTTTT:

We wish to acknowledge receipt of your letter dated July 5, 2002, regarding the application of Kansas Retailers’ Sales tax.

This is a private letter ruling pursuant to K.A.R. 92-19-59.

A nonprofit museum or historical society does NOT qualify to receive a Project Exemption Certificate which would allow a contractor, subcontractor, or repairman to purchase or furnish materials exempt from sales tax.

Material used by a contractor for a museum exhibitry project shall be subject to sales tax. In the state of Kansas, contractors are deemed to be the final user of material in museum exhibitry projects. The taxing event shall be deemed to occur at the time a contractor purchases materials, or when a contractor/retailer removes material from inventory to perform a museum exhibitry project. The taxable base subject to sales tax shall be the cost of the materials.

In closing, the contractor shall pay the appropriate Kansas sales tax at the time of purchase on the materials, and a contractor/retailer shall accrue any applicable Kansas sales tax on the cost of the materials, when the respective materials are removed from inventory, to be used in a museum exhibitry project.

Please be advised that if the audio-visual software programs are purchased directly by nonprofit museum or historical society, then the respective purchase would be exempt from Kansas sales tax(es), pursuant to K.S.A. 79-3606(qq). Likewise, the sale of any audio-visual hardware would be exempt from Kansas sales tax(es), if purchased directly by nonprofit museum or historical society

This response 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 an accurate determination by the department, this ruling is null and void. This private letter 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: 07/11/2002 Date Modified: 07/11/2002

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