Opinion Letter

Letter Number:O-2006-001
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Retail business on a Kansas military base under a long-term AAFES (Army Air Force Exchange Service) concession contract.
Keywords:
Approval Date:01/18/2006



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Office of Policy & Research


January 18, 2006

XXXX
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XXXX Dear XXXX:

Thank you for your recent letter. You operate a retail business on a Kansas military base under a long-term AAFES (Army Air Force Exchange Service) concession contract. You believe that Title 4 USC 107(b) authorizes your business and others like it to forgo collecting Kansas sale tax on on-base retail sales made to military personnel and others. However, a Q & A published on the department's Policy Information Library states that the controlling law requires AAFES concessionaires to collect Kansas sales tax on their on-base sales. You ask the department to review this determination.

K.S.A. 27-101(a), K.S.A. 27-102, and K.S.A 48-201 provide a starting point for a review of the department's ruling. K.S.A. 27-101(a) gives consent to the Federal government to acquire land within Kansas for certain uses:

K.S.A. 27-102 explains what jurisdiction is ceded to the Federal government on the lands it acquires and what jurisdiction is retained by the State of Kansas:
K.S.A 48-201 provides:

K.S.A 48-201 instructs that the Kansas cannot require an instrumentality of the armed forces that sells to military personnel to collect Kansas sales tax unless Congress has granted specific authority to do so. As will be discussed, "instrumentalit[ies] of the armed forces" are AAFES base and post exchanges. An AAFES concessionaire is not an instrumentality of the Federal government or the armed forces. See Texas Comptroller of Public Accounts Hearing No. 9814, 7805H0281A05 (February 24, 1978). Because it only deals with Federal instrumentalities, K.S.A 48-201 technically does not limit Kansas from requiring on-base AAFES concessionaires to collect its sales tax. However, for purposes of a full discussion of the issues being raise, this letter will assume that K.S.A 48-201 requires Congressional authorization before Kansas can require AAFES concessionaires to collect State sales tax.

Any specific Congressional authorization required by K.S.A 48-201 can be found in the Buck Act, Title 4 U.S.C. 105-113. Section 105 is titled: "State, and so forth, taxation affecting Federal areas; sales or use tax " This section provides, in parts relevant here:

The underlined grant of jurisdiction satisfies any condition precedent that K.S.A 48-201 establishes before retailers can be required to collect Kansas sales tax on their on-base sales. As has been discussed, K.S.A 48-201 bars the State of Kansas from requiring certain instrumentalities to collect excise tax on sales to military personnel "except those state excise taxes which may be specifically authorized by the various acts of the Congress of the United States." The authorization in 4 U.S.C. 105(a) specifically allows State sales taxes to be collected on on-base retail sales. This authorization applies equally to on-base retailers and off-base retailers who make retail delivers to individuals on base.

The "instrumentalit[ies] of the armed forces of the United States engaged in resale activities to members of the armed forces" are AAFES base and post exchanges. 4 U.S.C. 107 makes it clear that the Buck Act does not allow States to tax sales made by these exchanges:
The Army and Air Force regulations that implement 4 U.S.C. 107(b) recognize that the States can lawfully require AAFES concessionaires to collect State sales tax on on-base retail sales made to military personnel. Army Regulation No. 62-20/Air Force Regulation No. 147-14 (1993), which sets forth the Army and Air Force Exchange Service Operating Policy, directs at Paragraph 6-2(a) through (d):

Subsections (a) and (b) provide that sales made by AAFES base and post exchanges are immune from State taxation. This implements 4 U.S.C. 107(a), which is quoted above. Subsection (d) provides that the immunity extended to base and post exchanges under subsections (a) and (b) does not extend to sales made by concessionaires or to independent contractors that contract with AAFES. This implements 4 U.S.C. 107(b), which is also quoted above.

Other states have litigated the issue being discussed here. In Texas Comptroller of Public Accounts Hearing No. 7299, 7607H0236A12 (April 20, 1976), the Comptroller of Public Accounts discussed the proposition that the State of Texas had ceded it jurisdiction to tax activities on Federal enclaves within its borders:

See also Texas Comptroller of Public Accounts Hearing No. 9814, 7805H0281A05 (February 24, 1978), which held that an AAFES concessionaire was not a instrumentality of the Federal government; 3-D Amusements v. Commissioner of Revenue, Minnesota Tax Court, No. 5048 (March 24, 1989): "We are aware of no authority, and appellant has not directed use to any, which exempts sales by a concessionaire or independent vendor to individual military personnel."; and Comptroller of Public Accounts, et al. V. W & W Vending and Food Services of Texas, Inc., Texas Ct. of Appeals, Twelfth Supreme Judicial, No. 1407; 611 S.W.2d 713 (1981).

This review shows that the Q & A issued by the department is supported by the both the controlling Kansas statutes and the Buck Act. The department did not err in requiring your businesses, and other like it, to collect Kansas sales tax on retail sales to military personnel and others made on military bases in Kansas.

Date Composed: 01/19/2006 Date Modified: 01/19/2006