We have checked the ignition system and only 3.5 volts when key is turned on... won't start

Do this power the coil from the battery positive post and see what happens-if it does start up check the resistance wire from coil positive back to the ignition switch and also test the switch-

we tried that and it didn't start. It is 12 volts at the ignition switch but only 3.5 at the coil with the key on. What would cause this?

That's not even enough to power the coil-check where the voltage drop is or tap into the circuit from coil to switch and see what happens. I dunno if you have a resistance wire

should the positive wire from ignition be grounded when key is turned off?

The positive wire from the ignition should go to the coil's positive terminal

With the key off and unplugged from the coil. we can go from the positive side of the battery to the positive wire of the coil and get 12 volts. The wire would have to be grounded to get 12 volts, should it be?

No isolate it from ground-that's coming from the ignition switch-what you doing is bypassing the ignition switch

so the ignition switch does ground it? we can't get it to start and are thinking maybe it's the ignition switch.

It should be able to start unless you got another problem-are you getting fuel and spark?

yes we are getting fuel and spark. is that normal for the ignition switch to ground it? seems like the positive is touching a negative somewhere to get the full circuit.