Does a nonprofit apprenticeship fund qualify for the Kansas educational-institution sales-tax exemption?

Plain-English summary

A nonprofit apprenticeship fund asked to be treated as sales-tax exempt. Its predecessor fund had received a 1978 Department letter exempting it as a "nonprofit educational institution," and after the predecessor wound up and transferred its assets to the current fund, the current fund wanted the same exemption.

The Department said no — and explained that the old exemption no longer held either. In 1998, the legislature enacted a statutory definition of "educational institution" (see 1998 Kan. Sess. Laws Chap. 130, Sec. 29; the definition now appears at 2003 HB 2004, Sec. 5(l), incorporating K.S.A. 74-50,103). Under that definition, an "educational institution" is essentially a nonprofit school, college, or university offering education above the twelfth grade (accredited or qualifying), plus certain college-affiliated endowment, athletic, and research entities.

An apprenticeship fund does not fit that definition. The 1998 enactment effectively revoked the 1978 exemption letter for the predecessor fund, and nothing in the current definition exempts the successor fund. Accordingly, all of the apprenticeship fund's purchases are taxable.

What this means for you

Apprenticeship, training, and workforce funds

Providing job training or apprenticeship instruction does not make you an "educational institution" for Kansas sales-tax purposes. That category is limited to nonprofit schools/colleges/universities above the twelfth grade and a few college-affiliated entities. Expect to pay Kansas sales tax on your purchases.

Organizations relying on an old exemption letter

A Department exemption letter can be overtaken by later legislation. The 1998 definition wiped out a 1978 exemption here. If you hold an older ruling, confirm it still holds under current law — a private letter ruling is automatically revoked when a statute it relied on changes materially.

Nonprofits inheriting assets from an exempt predecessor

Exempt status does not automatically transfer with assets. A successor organization must independently qualify under current law.

Common questions

Q: We run apprenticeship training — aren't we an educational institution?
A: Not for Kansas sales tax. The statutory definition covers nonprofit schools/colleges/universities above the twelfth grade (and certain college-affiliated entities), which an apprenticeship fund does not fit.

Q: Our predecessor had a 1978 exemption letter. Doesn't that carry over?
A: No. The 1998 statutory definition effectively revoked that letter, and the successor fund does not independently qualify, so its purchases are taxable.

Q: Why did a 1998 law affect a 1978 letter?
A: A private letter ruling or exemption letter is revoked by operation of law when a statute it relied on changes materially — here, the new definition of "educational institution."

Q: Does this ruling apply to my organization?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department applies the educational-institution definition.

Citations and references

• 2003 HB 2004, Sec. 5(l) — the current statutory definition of "educational institution" (nonprofit schools/colleges/universities above the twelfth grade and certain college-affiliated entities). The apprenticeship fund did not fit it.
• K.S.A. 74-50,103 — referenced within the definition as an alternative way to qualify as an "educational institution."
• 1998 Kan. Sess. Laws Chap. 130, Sec. 29 — the 1998 enactment that added the definition and effectively revoked the predecessor fund's 1978 exemption letter.
• 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-2003-050

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 27, 2003

XXXX
XXXX
XXXX

RE: Your letter dated September 11, 2003

Dear XXX:

You represent the Apprenticeship Fund #1. Recently, the Apprenticeship Fund #2 ceased operations and transferred all of its assets to the Apprenticeship Fund #1. The department of revenue, by a letter ruling dated March 28, 1978, had exempted the Apprenticeship Fund #2 from sales tax as an nonprofit educational institution. You request a ruling that the Apprenticeship Fund #1 is similarly exempt. Please be advised that the Apprenticeship Fund #1 is not exempt. The Apprenticeship Fund #2 also was not exempt after July 1, 1998 because of a legislative enactment that defined "educational institution." See 1998 Kan. Sess. Laws Chap. 130,Sec. 29. This definition is now found at 2003 HB 2004 Sec.5 (l):

(l) "Educational institution" means any nonprofit school, college and university that offers education at a level above the twelfth grade, and conducts regular classes and courses of study required for accreditation by, or membership in, the North Central Association of Colleges and Schools, the state board of education, or that otherwise qualify as an "educational institution," as defined by K.S.A. 74-50,103, and amendments thereto. Such phrase shall include: (1) A group of educational institutions that operates exclusively for an educational purpose; (2) nonprofit endowment associations and foundations organized and operated exclusively to receive, hold, invest and administer moneys and property as a permanent fund for the support and sole benefit of an educational institution; (3) nonprofit trusts, foundations and other entities organized and operated principally to hold and own receipts from intercollegiate sporting events and to disburse such receipts, as well as grants and gifts, in the interest of collegiate and intercollegiate athletic programs for the support and sole benefit of an educational institution; and (4) nonprofit trusts, foundations and other entities organized and operated for the primary purpose of encouraging, fostering and conducting scholarly investigations and industrial and other types of research for the support and sole benefit of an educational institution.

The 1998 enactment effectively revoked the 1978 exemption letter for the Apprenticeship Fund #2. There is nothing in the new definition that exempts the Apprenticeship Fund #1. Accordingly, all of its purchases are taxable.

Please call me if you need to discuss this matter further. 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.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 10/28/2003 Date Modified: 10/28/2003

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