Publication KS-1520 Exemption Certificates

If there is a conflict between the law and information found in this publication, the law remains the final authority. Under no circumstances should the contents of this publication be used to set or sustain a technical legal position. A library of current policy information is also available on the Kansas Department of Revenue’s website at: ksrevenue.org

PDF printable copy is located here.

NOTE: Underlying law may have changed. See Revenue Notice 19-04 concerning nexus.

This booklet is designed to help businesses properly use Kansas sales and use tax exemption certificates as buyers and as sellers. It explains the exemptions currently authorized by Kansas law and includes the exemption certificates to use. Businesses with a general understanding of Kansas sales tax rules and regulations can avoid costly errors. Use this guide as a supplement to the Kansas Department of Revenue’s basic sales tax publication, KS-1510, Kansas Sales and Compensating Use Tax.

As a registered retailer or consumer, you will receive updates from the Kansas Department of Revenue when changes are made in the laws governing sales and use tax exemptions. Keep these notices with this booklet for future reference. You may also obtain the most current version of any exemption certificate or publication from our website.

Table of Contents

RETAILER RESPONSIBILITIES

THE CARDINAL RULE

Kansas retailers are responsible for collecting the full amount of sales tax due on each sale to the final user or consumer. All Kansas retailers should follow this cardinal rule:

All retail sales of goods and enumerated taxable services are considered taxable unless specifically exempt.

Therefore, for every sale of merchandise or taxable service in Kansas, the sales receipt, invoice, or bill MUST either:

  • show that the total amount of sales tax due was collected, or
  • be accompanied by a Kansas exemption certificate or Form PR-78SSTA (Streamlined Sales Tax Agreement Certificate of Exemption).

WHAT IS AN EXEMPTION CERTIFICATE?

An exemption certificate is a document that a buyer presents to a retailer to claim exemption from Kansas sales or use tax. It shows why sales tax was not charged on a retail sale of goods or taxable services. The buyer completes and furnishes the exemption certificate, and the seller keeps the certificate on file with other sales tax records. An exemption certificate must be completed in its entirety, and should:

  • explain why the sale is exempt,
  • be dated,
  • describe the property being purchased unless using Form PR-78SSTA, and
  • contain the seller’s name and address and the buyer’s name, address, and signature.

Some exemption certificates also require a buyer to furnish the Kansas tax account number or request a description of the buyer’s business. The exemption certificates for nonprofit organizations require the exempt entity’s tax ID number.

The Kansas exemption certificates that begin on page 15 meet these requirements. The requirement also applies to Form PR-78SSTA. When the appropriate certificate is used, and all the blanks are accurately filled out, the certificate may be accepted by a retailer.

ACCEPTING EXEMPTION CERTIFICATES

An exemption certificate relieves a seller from collecting sales tax if it has obtained the required identifying information as determined by the director and the reason for claiming the exemption at the time of purchase. A seller should:

  1. verify the identity of the person or entity presenting the exemption certificate; and
  2. maintain the fully completed exemption certificate in your sales tax records for at least three years.

You should obtain the appropriate exemption certificate from your customer at the time of the sale and no later than 90 days subsequent to the date of sale.

However, some customers claim to be exempt only after the goods or services have been delivered, and deduct the tax from the bill. When this happens, you are still responsible for obtaining an exemption certificate from the customer. If you are unable to secure an exemption certificate the sale is considered taxable, and as the retailer, you will be liable for the tax.

BLANKET EXEMPTION CERTIFICATES

If you make recurring exempt sales of the same type to the same customer, you are not expected to obtain an exemption certificate for each transaction. Kansas law provides that a seller is relieved of liability for the tax when he obtains a blanket exemption certificate from a purchaser with which the seller has a “recurring business relationship.” Such certificate need not be renewed or updated when there is a recurring business relationship between the buyer and seller. A “recurring business relationship” exists when a period of no more than 12 months elapses between sales. All of the certificates in this booklet may be used as blanket certificates.

All Tax-Exempt Entity Exemption Certificates (sample shown on page 15) contain an expiration date. If a Tax-Exempt Entity Exemption Certificate is obtained by the seller it can be used for all sales made prior to the expiration date as provided on the certificate. There is no need for the seller to obtain multiple copies of this Tax-Exempt Entity Certificate.

RECORD KEEPING

You must keep all sales tax records, including exemption certificates, for your current year of business and at least three prior years. DO NOT send exemption certificates to the Kansas Department of Revenue with your sales tax return.

BUYING YOUR INVENTORY

Probably the most widely used sales tax exemption is for the purchase of items intended for resale. When buying your inventory from a wholesaler or another retailer, or selling inventory items to another retailer, you will use a Resale Exemption Certificate (ST-28A) or Form PR-78SSTA.

RESALE EXEMPTION CERTIFICATE REQUIREMENTS

A resale exemption certificate has two requirements:

  1. the items purchased must be for resale in the usual course of the buyer’s business; and
  2. the buyer must have a Kansas sales tax account number, except in drop shipment situations.

A retailer should make sure both requirements are provided before accepting a Resale Exemption Certificate from the customer. The following discussion of these requirements will help you avoid costly errors.

ITEMS PURCHASED MUST BE FOR RESALE

A buyer can use a resale exemption certificate only to purchase the property that will be for resale and not for personal or other nonexempt use. The property being purchased must be of the type normally sold at retail in the usual course of the buyer’s business. For example, a restaurant owner cannot use an exemption certificate to buy tires or appliances since a restaurant does not customarily sell these items.

KANSAS SALES TAX ACCOUNT NUMBERS

The Kansas Department of Revenue assigns a sales tax account number to you after you complete a Business Tax Application (CR-16). The account number is printed on your Retailers’ Sales Tax Registration Certificate and is used to report and pay the sales tax you collect from your customers to the Kansas Department of Revenue. It is also the number that MUST be provided on a Resale Exemption Certificate (ST-28A) or Form PR-78SSTA.

CAUTION: DO NOT accept a photocopy of a customer’s sales tax registration certificate instead of a completed exemption certificate. You cannot exempt a sale from tax simply because the buyer is a registered retailer.

A common misconception is that a sales tax account number is also a “tax-exempt” number. However, a sale is not exempt simply because the buyer has a sales tax number. A tax number only proves the customer is a registered retailer; it does not certify that the item(s) purchased are exempt (for resale or any other reason).

NOTE: A completed exemption certificate must be obtained from the customer before the sale is exempt.

Retailers from other states

As a general rule, wholesalers and buyers from other states not registered in Kansas should use the Multi-Jurisdiction Exemption Certificate (ST-28M) or a PR-78SSTA to buy items for their resale inventory. These certificates may also be used by wholesalers to buy their inventory. If the inventory item purchased by an out-of-state retailer is drop shipped to a Kansas location, the out-of-state retailer may provide to the third party vendor a Resale Exemption Certificate from any state, or the Multi-Jurisdiction Exemption Certificate showing registration for any state. They may also use PR-78SSTA exemption certificate. The law does not require that they have a Kansas registration in order for the sale to be exempt.

Sales Tax Account Number Format

Your Kansas sales tax account number has three distinct parts:

  1. Tax Type. Each tax type administered by the Kansas Department of Revenue has been assigned a number. The “004” is the number assigned to Retailers’ Sales Tax. The tax type number appears on your registration certificate and on the sales tax return.
  2. Account Number = EIN (Employer Identification Number). The account number is your federal EIN, followed by the letter “F.” The nine-digit EIN is issued by the Internal Revenue Service to identify employers and businesses. If you are not required to have an EIN, the Kansas Department of Revenue will create an account number for you. These account numbers begin with a “K” (or an “A” if registering online with the Kansas Business Center) followed by eight numbers and the “F.” For example: 004-K12345678F-01
  3. Numerical Suffix. The two-digit code at the end of the number is for the Kansas Department of Revenue’s use. For most taxpayers it is “01.” This code could either denote the number of locations or number of registrations under this EIN, “K”, or “A” number.

SAMPLE COMPLETED RESALE EXEMPTION CERTIFICATE

All the blanks on an exemption certificate should be completed before the exemption certificate may be accepted by a retailer (page 14). Use the Resale Exemption Certificate illustrated in the following example as a guide. Also, the Form PR-78SSTA may be used. (Commpleted example form located in PDF document)

SALES TAX EXEMPTIONS

The sales tax exemptions authorized by Kansas law fall into three general categories. These are: entities who are exempt, specific items that are exempt, and uses of an item that makes it exempt. This section explains each category with examples and exceptions noted. Additional information about an exemption is part of the certificate designed for it.

EXEMPT ENTITIES

All of the following entities are exempt from sales tax when making a direct purchase of goods. Most, but not all of these entities, are also exempt when making a direct purchase of a taxable service. The Tax-Exempt Entity Exemption Certificate issued by the Kansas Department of Revenue to the entity states whether its exemption is limited to just goods or whether the exemption extends to services as well. A direct purchase is one that is billed directly to the exempt buyer. A retailer can require payment by check, voucher or warrant of the exempt entity, but it is not mandatory to do so.

  • The U.S. Government, its agencies andinstrumentalities
  • The state of Kansas and Kansas political subdivisions: school districts, counties, cities, etc.
  • Elementary and secondary schools
  • Noncommercial educational television and radiostations
  • Nonprofit blood, tissue and organ banks
  • Nonprofit educational institutions
  • Nonprofit 501(c)(3) historical societies
  • Nonprofit hospitals
  • Nonprofit 501(c)(3) museums
  • Nonprofit 501(c)(3) primary care clinics
  • Nonprofit 501(c)(3) religious organizations
  • Nonprofit 501(c)(3) zoos
  • Nonprofit youth development programs
  • Parent-teacher organizations (PTA or PTO)

FOR A COMPLETE LIST OF EXEMPT ENTITIES SEE PAGE 16.

The 501(c)(3) designation refers to the section of the Internal Revenue Code under which a nonprofit entity has been granted an exemption from federal (and state) income tax. Although used to define who qualifies for an exemption, a nonprofit 501(c)(3) designation does not mean the organization is automatically exempt from sales tax. Only the entities listed under Kansas sales tax statutes are exempt from paying Kansas sales tax on their direct purchases when the appropriate exemption certificate is completed and provided to the retailer.

Although exempt by law, these entities must still support their exemption with a completed exemption certificate. This booklet contains exemption certificates that can be used for each of these exempt buyers with examples and common pitfalls to avoid or, Form PR-78SSTA can be used.

There are special rules applicable to exempt entities on purchases for certain construction projects and repair work. See Project Exemption Certificates.

Exception: When the state of Kansas or nonprofit hospital operates a taxable business (such as a public cafeteria or gift shop), or when a political subdivision sells or furnishes utilities, “non-inventory items” purchased for use in these taxable businesses are taxable to the otherwise exempt group.

Example

A city’s gas utility must pay sales tax on office equipment, pipe and vehicles used (even partially) by it’s gas utility. A hospital must pay sales tax on its restaurant equipment, furniture, fixtures and reusable utensils purchased for its public cafeteria.

Credit Cards

Many government agencies are issuing credit cards to employees and agents who travel or make purchases while on official business or on behalf of the agency. When the agency is responsible for payment of credit card charges, purchases made by employees with said credit card are exempt from Kansas sales or use tax as a direct purchase. When someone other than the exempt entity is responsible for payment of the credit card charge, the purchase is not automatically exempt. The appropriate exemption certificate must be obtained.

Exception: The rental of hotel rooms by agents or employees of the U.S. Government while on official business is exempt regardless of the method of payment.

Buyers who are NOT exempt

A common misconception is that all nonprofit organizations are exempt from retailers’ sales tax. While a nonprofit status for income tax purposes may be a requirement for a Kansas sales tax exemption, nonprofit organizations that have not been granted a specific sales tax exemption must pay tax on their purchases. Groups and organizations that are NOT EXEMPT from paying Kansas sales tax include alumni associations, charitable and benevolent organizations, clubs, labor unions, and professional associations.

SPECIAL SITUATIONS

RELATED TOPICS

USING EXEMPTION CERTIFICATES

SAMPLE EXEMPT ENTITY CERTIFICATE

EXEMPTION CERTIFICATES

TAXPAYER ASSISTANCE

This publication is a general guide and will not address every situation. If you have questions or need additional information, please contact taxpayer assistance at the Kansas Department of Revenue.

By Phone - 785-368-8222

By Mail - Tax Operations, PO Box 3506, Topeka, KS 66625-3506

By Appointment - Go to ksrevenue.gov to set up an appointment at the Topeka or Overland Park office by using the Appointment Scheduler.

Office hours are 8 a.m. to 4:45 p.m., Monday through Friday.

PUBLICATIONS

Below is a list of publications available on the Kansas Department of Revenue’s website. These publications contain instructions applicable to specific business industries and general information for all business owners.

STATE SMALL BUSINESS WORKSHOPS

As part of our commitment to provide tax assistance to the business community, Tax Specialists within the Kansas Department of Revenue conduct small business workshops on Kansas taxes at various locations throughout Kansas. Whether you are a new business owner, an existing business owner, or an accountant, these workshops will give you the tools and understanding necessary to make Kansas taxes easier and less time consuming for you. Topics covered include filing and reporting requirements and methods, what is taxable, what is exempt and how to work with the department in collecting and remitting Kansas taxes.

For a schedule of our workshops, visit our website. Pre-registration is required and a fee may be charged by the sponsoring Small Business Development Center (SBDC).

Rev. 07-24