A state investigation continues into whether Kansas State University’s online merchandise store is skirting sales tax law, and now some state legislators also are beginning to question KSU’s online practices.
In early August, the Journal-World reported that purchases made by Kansas residents at the “K-State Official Online Store” were not being charged any sales taxes. On Monday, a KSU spokeswoman confirmed that the Kansas Department of Revenue has inquired about the issue and that the university has put the state in contact with the Florida-based vendor that runs the K-State website.
“The university is a citizen of the state, and we want to make sure that we follow all the laws that we are supposed to,” said Sue Peterson, director of governmental relations in the office of KSU’s president.
But the university is stopping short of pledging it will charge sales taxes in the future. The university hasn’t ruled out that there is a loophole in state law that would allow KSU’s online store to not charge sales tax. That’s because the site is run by a Florida company, Team Fan Shop, that has no bricks-and-mortar retail presence in Kansas. Out-of-state retailers who make online sales in Kansas generally aren’t required to charge sales taxes.
A spokesman with the Kansas Department of Revenue, though, confirmed Monday that his office has made a ruling that a university’s online store — regardless of whether it is run by an out-of-state vendor — is a Kansas business for taxation purposes.
“It is our position that they would have to pay the tax,” Cram said of universities in general. “We wouldn’t care where the online store was run from.”
Cram said he wasn’t able to comment on any specifics of the Kansas State matter because state law prohibits the department from publicly discussing open investigations.
As of Monday, however, the site was still not charging sales taxes.
“I can tell you that we have taken follow-up action, but that can take some time,” Cram said.
The issue is beginning to raise questions with some state legislators in the Manhattan area.
“Just off the top of my head, it doesn’t seem right, it doesn’t seem acceptable,” said Sen. Roger Reitz, R-Manhattan.
Reitz said the fact that a state entity isn’t charging sales tax when Kansas-based retailers are forced to charge sales tax for the same merchandise creates a perception problem.
“I think what is good for the goose is good for the gander,” Reitz said. “This sort of thing should be looked at and really have some questions asked.”
Other legislators said they also may want to bring the issue up, depending on how the matter is resolved with the Kansas Department of Revenue.
“I would hope the university and the people who are doing this would be aware of what they’re doing,” said Rep. Vern Swanson, R-Clay Center. “In the back of mind, I’m thinking they rely a lot on state finances.”
Private retailers who sell K-State merchandise online have expressed concern about the lack of taxes charged on the K-State site.
“I would expect a resolution that involves Kansas State charging a sales tax,” said Aaron Liebert, CEO of the Kansas Sampler, which charges sales tax on online sales. “It probably is a gray area, but it really isn’t that gray. A public institution that sells merchandise ought to charge sales taxes like the rest of us.”
It is unclear whether Florida-based Team Fan Shop will contest the state’s ruling that sales taxes must be charged on merchandise sales. It also was unclear whether Kansas State University would direct Team Fan Shop to not contest the state’s ruling.
“The university is in a position to say that it will follow Kansas law,” Peterson said.
A representative from Team Fan Shop did not return a phone call on Monday seeking comment. The company specializes in running online stores for universities and professional sports teams. It wasn’t immediately clear whether Team Fan Shop charges sales tax at any of the approximately 65 university and conference online stores that it operates. During the past year, Team Fan Shop made $130,000 in sales on the K-State site. But it has agreements with other universities that likely are producing much larger sales and could be producing larger tax liabilities, if sales taxes aren’t being charged. The company operates the online stores of the University of Oklahoma, the University of Nebraska, the University of Alabama, Ohio State University and several other powerhouse footballs schools.
Kansas University, which had about $708,000 in sales last year at its online store, uses a different vendor and charges sales tax on its site.