Questions and Answers

Identifying Information:Room & board contracts
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Room & board contracts
Keywords:
Approval Date:08/26/2010



Body:
KANSAS DEPARTMENT OF REVENUE
OFFICE OF POLICY & RESEARCH

Question: How does Kansas sales tax apply to charges billed to college social fraternities and sororities by caterers and food contractors for providing food and meals that the fraternity or sorority is obligated to provide to member residents under its room-and-board contracts?

Answer: A contract for room and board is an agreement to provide regular meals and lodging for a set price or as part of wages. These contracts are entered into by colleges and students for dormitory rooms and meals, by fraternities or sororities and their members for sleeping accommodations and meals, and by boarding houses and their residents.

Charges to a student or other person for room and board are not subject to Kansas sales tax. Kansas sales tax does apply to a room-and-board provider's purchases of food used to prepare meals or to otherwise furnish under its room-and-board contracts. K.S.A. 2009 Supp. 79-3603(e); K.A.R. 92-19-21.

Many nonprofit schools and colleges in Kansas qualify for exemption under K.S.A. 79-3606(c) and are entitled to claim exemption when buying food used to board students. Any school or college that does not qualify for exemption under K.S.A. 79-3606(c) is required to pay sales tax on these food purchases, and should not charge sales tax when billing students for room and board. College social fraternities and sororities and other room-and-board providers are not exempt entities under Kansas law and are required to pay sales tax when buying the food they use to provide board. Room-and-board providers do not have an option of charging or accruing sales tax on the estimated cost of board that is being paid for under a room and board contract.

Room-and-board providers sometimes hire a third-party caterer or food contractor to carry out the provider's contractual obligation to furnish regular meals to students or other boarders. Under these arrangements, charges for room and board remain nontaxable. As with provider payments for food, provider payments to the third-party caterer or food contractor are fully taxable. See K.A.R. 92-19-69, Caterers.

Caterers and food contractors that contract with room-and-board providers are required to register with the department as retailers doing business in Kansas. They must charge, collect, and remit sales tax on the total amount they bill to a room-and-board provider for meals, food, and any other related goods or services unless the provider issues them a completed "Sales and Use Tax Entity Exemption Certificate." (Form PR-78).

A Sales and Use Tax Entity Exemption Certificate contains a unique "Kansas Exemption Number" and is identified as a Form PR-78ED (education institution), a Form PR-78KS (State of Kansas, Kansas city or county, or a non-profit hospitals), a Form PR-78GW (ground water district), or something similar. Form PR-78's are intended to be copied, and exemption claimed by completing a copy and presenting it to the retailer. Lines are provided for the name and signature of an authorized employee, the entity's Federal ID number, the date, the seller's name and address, and a description of the goods or services being purchased. A retailer can rely on a completed certificate to exempt future sales of similar goods to the same entity for any sale made before the expiration date listed on the certificate.

Nearly every Kansas school or college that qualifies for exemption under K.S.A. 79-3606(c) has applied for and obtained a Form PR-78ED from the department, which documents their tax exempt status. To claim exemption, the school or college should complete the certificate and present it to the caterer or food contractor who is required to retain the certificate as part of its tax records. K.A.R. 92-19-4b. A retailer can verify an entity's exemption status at: https://www.kdor.org/exemptionCerts/default.aspx.

Fraternities and sororities are not exempt entities and cannot secure a Sales and Use Tax Entity Exemption Certificate from the department. As a result, fraternities and sororities are required to pay sales tax on everything they buy to use or consume, except when a residential exemption applies. See e.g. K.S.A. 79-3603(p); K.S.A. 2009 Supp. 79-3606(w).

Because third-party caterers and food contractors are required to collect sales tax on the charges they bill to room-and-board providers, they are entitled to claim a resale exemption when they buy food used to prepare meals or to otherwise furnish under their contract with the room-and-board provider. Caterers and food contractors do this by completing a Resale Exemption Certificate (Form ST-28A) and issuing it to their grocers and other food suppliers. These food purchases are exempt even when the caterer or food contractor knows it will not collect sales tax later because the food will be used to prepare meals for students in a dormitory owned and operated by an exempt school or college. Caterers and food contractors are not exempt on their purchases of pots and pans, cooking and refrigeration equipment, cooking utensils, and similar items.

This Q & A on room and board does not apply to a caterer or food contractor that is hired by school, college, or university to operate a cafeteria, restaurant, concession, or any other similar venture that is open to the public.



Date Composed: 09/16/2010 Date Modified: 09/16/2010