Can an organization with a Kansas manufacturer's exemption also claim exemption as a nonprofit educational institution?

Plain-English summary

An organization that had recently been recognized as a manufacturer — and given a Manufacturer's Exemption letter allowing it to buy materials used in its manufacturing process exempt from sales tax — also asked to be recognized again as an exempt nonprofit educational institution.

The Department said it no longer qualifies as an educational institution. A 1998 legislative enactment created a narrower definition of "educational institution," now codified at K.S.A. 79-3602(l), effective July 1, 1998. That definition generally covers nonprofit schools, colleges, and universities offering education above the twelfth grade (plus certain associated endowment, athletic, and research entities). Nothing in the new definition covers this organization, so the 1998 change revoked its former educational-institution exemption.

The practical result: the organization keeps its manufacturer's exemption for materials used in manufacturing, but all other purchases it consumes are taxable.

What this means for you

Organizations that once held an educational-institution exemption

The 1998 redefinition (K.S.A. 79-3602(l)) narrowed who qualifies. If you do not offer education above grade 12 (or fit one of the listed associated entities), you are not an exempt educational institution, even if you were treated as one before.

Manufacturers that are also nonprofits

A manufacturer's exemption covers only materials used in the manufacturing process. It does not exempt your other purchases, and it is separate from any entity-based exemption.

Common questions

Q: We had an educational-institution exemption before — is it still good?
A: Not necessarily. The 1998 enactment (K.S.A. 79-3602(l)) revoked it for organizations that do not meet the new definition.

Q: Does the manufacturer's exemption cover all our purchases?
A: No. It covers materials used in the manufacturing process; other purchases the organization consumes are taxable.

Citations and references

• K.S.A. 79-3602(l) — the post-1998 definition of "educational institution" (nonprofit schools, colleges, and universities offering education above the twelfth grade, plus specified endowment, athletic, and research entities); the Department held the 1998 enactment "effectively revoked" the organization's educational-institution status effective July 1, 1998, so its purchases (other than exempt manufacturing materials) are taxable. The Department cited 1998 Kan. Sess. Laws Chap. 130, Sec. 29.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2005-004

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

March 18, 2005

xxxxxxxxxxx
xxxxxxxxxxxxxx
xxxxxxxxxxxxx
xxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxx

Dear Mr. xxxxxxx:

Xxxxxxxxxxxxxx and the department have had discussions during the past 2 months concerning the tax exempt status of xxxxxxxxxxxxx. On February 23, 2005, Bob Clelland determined xxxxxxxxxxxxxxx was a manufacturer and mailed to you a Manufacturer’s Exemption letter. This letter enables your organization to purchase materials used in the manufacturing process exempt from sales tax.

In the letter mailed to the department on February 23, 2005 you included information that showed xxxxxxxxxxxxxx had been exempt from sales tax as an nonprofit educational institution. You are requesting a similar ruling at this time. Please be advised that xxxxxxxxxxxxxxxx is not exempt as an educational institution since 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 K.S.A 79-3602(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 xxxxxxxxxxxxxx status as a non-profit educational institution. There is nothing in the new definition that exempts would exempt xxxxxxxxxxxxx as an educational institution. Accordingly, all purchases consumed by xxxxxxxxxxxxxxxxx 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,

Steven Brunkan
Office of Policy and Research

Date Composed: 03/25/2005 Date Modified: 03/25/2005

Table 1

Table 2