Must a Kansas school collect sales tax on t-shirts it buys and resells to students at cost, even with no profit?

Plain-English summary

A Kansas school wanted to know whether it had to charge sales tax on t-shirts it buys and then resells to students at cost. Staff had gotten conflicting verbal answers from the Department — one person was told the sales were taxable, another was told no tax applied because the school makes no profit.

The Department ruled the sales are taxable. A Kansas school is a retailer under K.S.A. 79-3602(ii) and is required to register with the Department and collect sales tax on the goods, admission charges, and enumerated services it sells at retail — a duty the Kansas Supreme Court confirmed in State Tax Comm. v. Board of Education, 146 Kan. 722 (1937). Critically, profit is irrelevant: the school's sales and rentals to students are taxable regardless of whether the school realizes a profit on them, and even when made to support student participation in school activities.

The Department also flagged the danger of relying on phone advice. Under K.A.R. 92-19-59(b), "a retailer, consumer, or other person shall not rely upon a verbal opinion from the department of revenue" — only a written private letter ruling issued to a retailer about its collection duties binds the Department. The letter points the school to Departmental Publications KS-1550 and KS-1560, which list the wide range of taxable school sales (clothing/T-shirts, concessions, yearbooks, admissions to games and events, rentals, and more).

What this means for you

Schools, PTOs, booster clubs, and school activity funds

Selling merchandise to students — even at cost, even to fund an activity — is a taxable retail sale in Kansas. Register as a retailer and collect sales tax; "we don't make a profit" is not an exemption. Consult Publications KS-1550 and KS-1560 for the specific items and events that are taxable.

Anyone who calls a revenue department for guidance

A verbal answer is not something you can rely on in Kansas. If you need a binding answer for your own collection duties, get a written private letter ruling. Two callers here got opposite answers, and only the written ruling settled it.

Common questions

Q: Does a Kansas school have to charge sales tax on t-shirts sold to students?
A: Yes. Schools are registered retailers under K.S.A. 79-3602(ii) and must collect sales tax on retail sales of goods to students.

Q: We sell at cost and make no profit — is it still taxable?
A: Yes. The Department stated the sales are taxable regardless of whether the school realizes a profit.

Q: Someone at the Department told me by phone it wasn't taxable. Can I rely on that?
A: No. Under K.A.R. 92-19-59(b), no one may rely on a verbal opinion from the Department; only a written private letter ruling issued to a retailer binds the Department.

Q: Where can a school find what's taxable?
A: The Department cites Publications KS-1550 (Kansas Tax Guide for Schools and Educational Institutions) and KS-1560, which list representative taxable school sales, admissions, and rentals.

Citations and references

• K.S.A. 79-3602(ii) — defines "retailer"; the basis for treating a Kansas school as a registered retailer that must collect sales tax on its retail sales.
• K.A.R. 92-19-59(b) — provides that no person may rely on a verbal opinion from the Department, and that only a written private letter ruling issued to a retailer binds the Department.
• State Tax Comm. v. Board of Education, 146 Kan. 722, 73 P.2d 49 (1937) — Kansas Supreme Court decision the Department cites for schools' duty to collect and report sales tax on their retail sales.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2014-004

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 10, 2014

XXXX
XXXX
XXXX

RE: Your recent e-mail

Dear XXXX:

Thank you for your recent e-mail. In it, you state:

I just spoke to you regarding sales tax on t-shirts that our school would purchase. The students then purchase the shirts at the cost in which the school paid.

Our conversation led me to believe that this would be a taxable transaction.

At the same time, I was discussing the issue with you, our HS secretary called in and visited with a lady in your office and got a different answer stating that since the school was not making a profit then sales tax would not apply.

Can you please clarify this for me?

K.S.A. 79-3602(ii) provides: "(ii) 'Retailer' means a seller regularly engaged in the business of selling, leasing or renting tangible personal property at retail or furnishing electrical energy, gas, water, services or entertainment, and selling only to the user or consumer and not for resale." Kansas schools, including USD ABC, are required to register with the department as retailers and collect and report sales tax on the goods, admission charges, and enumerated services that they sell at retail. See State Tax Comm. v. Board of Education, 146 Kan. 722, 73 P.2d 49 (1937).

Publication KS-1550, Kansas Tax Guide for Schools and Educational Institutions, explains:

TAXABLE SALES BY SCHOOLS AND EDUCATIONAL INSTITUTIONS

The following is a representative but not all-inclusive list of the types of sales by schools and educational institutions which are generally subject to sales tax. . . .

RETAIL SALE OF GOODS AND MERCHANDISE (includes renting or leasing of property)

Athletic equipment & shoes
Bake sales, doughnuts
Balloons
Books, workbooks and manuals (obsolete & others)
Class jewelry, pictures and rings (if the tax is not collected and remitted by the firm selling the merchandise)
Clothing - T-shirts, etc.
Concession sales (candy, hot & cold drinks, ice cream, nachos, popcorn, etc.)
Corsages, flowers and plants
Family and individual portraits
Fireworks
Food and beverages
Freight or delivery charges (when included in cost of taxable items)
Graduation gown rentals
Graduation items (announcements, charms, mugs, robes, tassels, etc.)
Health supplies
Home economics projects
Jewelry
Lock rentals (separate from locker rental)
Magazine subscriptions
Meals (if open to the general public)
Musical instrument rentals
Newspapers and periodicals
Party food items
Printing and duplicating charges
Reproduction of printed materials
School pictures
School supplies (pencils, paper, notebooks)
School supply kits
Shop & art projects
Sporting goods, shoes, sports equipment, etc.
Storage sheds
Tote bags
Towel rentals
Uniforms
Upholstery sales & repairs
Vending machine sales (if machine is owned by the school)
Yearbooks

PROVIDING TAXABLE SERVICES

Auto and truck repair
Car washes
Repair of tangible personal property
Vehicle body work

ADMISSIONS/TICKETS

Activity tickets
Admissions (tickets) to school events, including basketball games, carnivals, concerts, dances, football games, fun nights, movies, plays, special events, swim meets, track meets, wrestling meets and other sporting events, etc.
Admission to amusement parks or rides, museums and planetariums
Admission to fund-raising events including auctions, chili suppers, haunted houses, home tours, and golf or tennis tournaments.
Lyceum tickets to lectures and other public programs
Teacher or student banquets (receipts are exempt if the banquet is held at an outside restaurant which charges the tax) (underlining added).

Publication KS-1550 and the Kansas Supreme Court decision in State Tax Comm. v. Board of Education clearly shows that USD ABC is required to charge and collect sales tax when it sells t-shirts to students. The Publication also shows the school received incorrect verbal advice from the department that suggested the sales are not taxable. K.A.R. 92-19-59(b) instructs: "A retailer, consumer, or other person shall not rely upon a verbal opinion from the department of revenue. Only a written private letter ruling issued to a retailer that concerns the retailer’s collection duties shall bind the department."

As Publication KS-1550 shows, a school's sales and rentals to students are taxable even when they are made to accommodate student participation in school activities. See Publication KS-1550, and its list of taxable school sales quoted above; State Tax Comm. v. Board of Education, supra. The school is a registered retailer and its sales and rentals are taxable regardless of whether the school realizes a profit on them.

Most questions that USD ABC will encounter about the taxability of its retail sales to students and employees are answered by Publication KS-1560, which lists representative taxable transactions. Please call Policy & Research if you have any questions about the school's collection duties that are not answered by the publication.

Sincerely,

Thomas E. Hatten

Date Composed: 09/16/2014 Date Modified: 09/16/2014

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