National Collegiate Athletic Ass'n v. Kansas Dept. of Revenue, 63293

• Decision Date: 27 October 1989
• Docket Number: No. 63293,63293
• Parties: , 56 Ed. Law Rep. 1296 The NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Appellant, v. KANSAS DEPARTMENT OF REVENUE, Appellee.
• Court: Kansas Supreme Court

Page 726

781 P.2d 726

245 Kan. 553, 56 Ed. Law Rep. 1296

The NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Appellant, v. KANSAS DEPARTMENT OF REVENUE, Appellee.

No. 63293.

Supreme Court of Kansas.

Oct. 27, 1989.

Syllabus by the Court

In an appeal by the National Collegiate Athletic Association from an order of the Board of Tax Appeals denying its application for a sales tax exemption, the record is examined and it is held: The Board of Tax Appeals erroneously determined that the applicant was not an educational institution within the purview of K.S.A.1988 Supp. 79-3606(c).

C.W. Crumpecker, Jr., argued the cause, and Daniel F. Kellogg, of Swanson, Midgley, Gangwere, Clarke & Kitchin, Kansas City, Mo., and Robert C. Londerholm, of Hackler, Londerholm, Corder, Martin & Hackler, Olathe, were with him on the brief for appellant.

James Bartle, of Kansas Dept. of Revenue, argued the cause, and Mark A. Burghart, Gen. Counsel, was with him on the brief for appellee.

McFARLAND, Justice.

This is an appeal by the National Collegiate Athletic Association (NCAA) from an order of the Board of Tax Appeals (BOTA) denying the NCAA an exemption from payment of sales taxes on its purchases.

The statute under which the NCAA claims exemption is K.S.A.1988 Supp. 79-3606, which provides:

"The following shall be exempt from the tax imposed by this act:

....

"(c) all sales of tangible personal property or services, including the renting and leasing of tangible personal property, purchased directly by a public or private elementary or secondary school or public or private nonprofit educational institution and used primarily by such school or institution for nonsectarian programs and activities provided or sponsored by such school or institution or in the erection, repair or enlargement of buildings to be used for such purposes. The exemption herein provided shall not apply to erection, construction, repair, enlargement or equipment of buildings used primarily for human habitation." (Emphasis supplied.)

Effective July 1, 1986, the Kansas Department of Revenue issued Revenue Ruling 19-86-2 which defined "educational institution" as used in 79-3606(c) as:

"[a]n institution with enrolled students which provides an organized curriculum of classes and courses involving the systematic teaching and learning processes that collectively make up the arts and sciences, the humanities, and other subjects or fields of study that are commonly associated with a classroom environment, and that are taught by certified or bona fide teachers or instructors in a centralized building or buildings that commonly comprise a school building or campus environment."

This revenue ruling was subsequently codified in K.A.R. 92-19-75 as follows:

"(a) 'Educational institution' means an institution with enrolled students that provides an organized and diverse curricula of classes and courses. The curricula shall involve the systematic and structured teaching and learning processes that collectively make up the arts and sciences, the humanities, physical education and other subjects or fields of study commonly associated with a classroom environment. Classes shall be taught by certified or bona fide teachers or instructors in a centralized building or buildings that commonly comprise a school building or campus environment.

"(b) To meet the definition of educational institution, an organization shall provide to its students a field of studies involving the whole course of training the moral, mental and physical faculties. The organization shall provide a variety of studies in various fields of interest. Merely providing a series of classes or instruction on one topic, vocation or skill shall not qualify that organization as an educational institution. Any organization which merely imparts knowledge or information to the public in a general manner through tours, seminars, brochures, mailings, pamphlets, or other publications does not qualify as an educational institution."

The facts concerning the organization, purposes, and activities of the NCAA are not in dispute. The NCAA is a voluntary, unincorporated association of some 800 colleges and universities as well as some 175 other sports-related organizations. The voting membership is wholly composed of four-year colleges and universities and athletic conferences comprised of NCAA member institutions. The NCAA promotes, develops, and regulates twelve intercollegiate sports. In National Collegiate Realty Corp. v. Board of Johnson County Comm'rs, 236 Kan. 394, 690 P.2d 1366 (1984), the following was said of the NCAA:

" 'The formation of the NCAA was traced to one particular problem--the need for rules to curb violence in intercollegiate football at the commencement of this century. Thus, in its beginning the NCAA's stated objective was to maintain college activities "on an ethical plane in keeping the dignity and high purposes of education." The growth of the NCAA beyond its primary work of salvaging football and structuring a formal organization has, indeed, been spectacular. From its humble beginnings and rule-making pertaining to one sport the organization, and its responsibilities, continued to grow and, in 1973, it was organizationally and procedurally revised. Currently, some of its more important organizational purposes are in the area 1) enforcement, 2) championships, 3) education, 4) broadcasting, 5) rule-making and 6) faculty control and eligibility standards. Of these areas, broadcasting has grown into a multi-million dollar income-generator for the organization.' " 236 Kan. at 396, 690 P.2d 1366.

At issue in National Collegiate Realty Corp. was whether the real estate occupied as the headquarters of the NCAA was exempt from ad valorem taxes as being used exclusively for educational purposes within the meaning of K.S.A. 79-201 Second and Article 11, § 1 of the Kansas Constitution. We held that the trial court, in reversing BOTA's order, correctly determined that the property was exempt. This prior case discusses the valuable role athletics play in education, and there is no reason to repeat that discussion herein. At issue before us now is whether the NCAA is an educational institution and thus entitled to exemption from paying sales tax on its purchases.

Before proceeding further it is appropriate to note there is some dispute between the parties as to the NCAA's history of sales tax exemption. The present headquarters of the NCAA was built in 1972 in Johnson County (previously the headquarters was located in Missouri). On February 24, 1972, the NCAA applied for a sales tax exemption on its headquarters construction project. This application was initially denied but was subsequently granted on April 10, 1972. Sales tax was not paid during construction. The Department of Revenue characterizes this as a project exemption. The instrument itself does not set forth such a limited purpose. The NCAA contends it was exempt until 1986 when its exemption was revoked, and that this action is one seeking reinstatement of its exemption. The revocation was in the form of a letter from the Department of Revenue dated July 31, 1986, which states in pertinent part:

"Your organization has previously received a letter from the Kansas Department of Revenue granting it exemption from Kansas sales and compensating (use) tax as a nonprofit educational institution.

"Enclosed, please find the Department of Revenue's ruling defining the term 'nonprofit educational institution'. Please read this ruling carefully, and, if you feel your organization meets the department's definition, you must send a written request to the department for a new ruling on your organization.

"You must include the following information with your request in order for the department to make a determination as to your organization's status under the Kansas statutes:

"1. A copy of the most recent determination of your organization's nonprofit status from: a) The United States Treasury Department; or b) The Kansas Secretary of State.

"2. A complete copy of your organization's teaching curriculum.

"3. A complete list of your organization's teaching staff, noting accreditation or highest educational level attained (i.e. bachelors degree, masters, Ph.D, etc.).

"4. Your organization's student enrollment and graduation requirements.

"After reviewing the submitted material, the department will make a written determination...