That new K-State jersey you purchased may draw more than just scorn from Jayhawk fans. It soon may be the subject of a state investigation.
The Kansas Department of Revenue confirmed it has asked its audit division to look into the online sales practices of Kansas State University’s Athletic Department to determine whether the school is failing to collect sales taxes on merchandise sold through its online store.
The Journal-World received a tip last week that purchases made by Kansas residents on the “K-State Official Online Store” were not being charged any sales taxes. The Journal-World made a purchase on the site last week and received a receipt that listed a category of “state taxes,” but the receipt showed that no state taxes were charged.
Throughout the day Friday, a K-State Athletic Department spokesman said he was confident that the site was charging the proper sales tax on in-state sales. But then, early Monday evening, the department conceded sales taxes were not being charged.
Now, K-State Athletic Department spokesman Kenny Lannou said the department has adopted the position that online sales don’t have to be taxed because the online orders are filled in a Florida center owned by Team Fan Shop, an online company that has no stores or employees in Kansas.
“It is not Kansas State Athletics,” Lannou said. “It is Team Fan Shop. They are in control of our online site.”
A leader with the Kansas Department of Revenue isn’t so sure he buys that argument. The store is named the “K-State Official Online Store,” is accessed through K-State’s Athletic Department website, and the store would not exist without the permission of Kansas State Athletics.
“I suppose we would have to look at it more, but I think we would take the position that it is a Kansas entity that is making the sale,” said Richard Cram, the revenue department’s director of policy and research. “I don’t think we would care where the product is coming from.”
Cram said he was forwarding the information to the department’s audit division. State auditors can examine the sales records of the online store and assess up to three years worth of back taxes and penalties, if they find the online store was not properly collecting sales taxes.
“We’re certainly going to address this,” Cram said.
K-State’s partnership with Florida-based Team Fan Shop, which manages online stores for a host of colleges and pro teams, is entering its third year. Lannou didn’t have sales totals for the online store immediately available. He said about 40 percent of all the sales at the online store are made to in-state residents. A representative of Team Fan Shop did not return a call for comment.
Kansas University’s Athletic Department does charge sales tax on in-state purchases, said Jim Marchiony, a spokesman for the department. KU uses a different vendor, Lids, which has stores in Kansas. Marchiony said that fact made it clear state sales taxes had to be charged. Marchiony said he was uncertain whether KU charged sales taxes on in-state purchases previously, when the online site was managed by another vendor.
K-State leaders said they don’t have any plans to change their practices.
“We’re going to let Team Fan Shop make that determination,” Lannou said. “If they ask us for any input, we could provide that.”
Some regional retailers that sell K-State gear said they would be surprised if K-State doesn’t change its policies.
“I would be surprised that now that they know about it that they will condone it,” said Steve Levin, general manager of Varney’s a major bookstore and apparel retailer in Manhattan. “If they don’t fix it, I think that will be a very unwise move. Even if they think they can get away with it, that’s not what this should be about.”
Varney’s charges sales tax on both its in-state and out-of-state sales made online. The Kansas Sampler also charges sales tax on online sales. Aaron Liebert, CEO and owner of the regional chain, said K-State’s practice wasn’t fair to Kansas companies that are providing jobs and tax revenue to the state.
“As a public institution, they should be going out of their way to help state businesses, but right now it looks like they’re stacking the deck against local businesses,” Liebert said.
K-State’s Lannou said the university has paid about $1.2 million in sales taxes related to other sales not connected to the online site.
“We are trying to do our part,” Lannou said.
But retailers said K-State’s online store is a good example of why traditional, locally owned retailers are struggling to survive.
“If you can save 8 to 9 percent by purchasing from an out-of-state site, consumers are going to do it unfortunately,” Liebert said. “It is a tremendous detriment to local retailers who produce local jobs.”
At the end of the day, Levin said he thinks it will be a detriment to the university as well.
“You know, all the K-State fans come to our games on highways built by tax dollars,” Levin said.