Can a community center claim the Kansas sales tax exemption for religious organizations?

Plain-English summary

A community center that was working on a number of construction projects asked the Department whether it could obtain a "special exemption" from Kansas sales tax — a contractor had told it that securing such an exemption would let it buy its project materials and services tax-free. The Department ruled that the center is not entitled to the exemption, because the exemption the contractor described applies only to "religious organizations" that use their purchases "exclusively for religious purposes" (1999 Kan. Sess. Laws Chap. 154 Sec. 6(aaa)).

The letter sets out the Department's three-part test for what counts as an exempt "religious organization":

• It must be "any organization, church, body of communicants, or other group that gathers in common membership for mutual support and edification, in piety, worship, and religious observance, at an established place of worship which the organization maintains for the purpose of conducting regularly scheduled religious services or meetings," with no part of its net earnings inuring to a private shareholder or member (drawing on K.S.A. 79-4701(e) and K.S.A. 8-1730a);
• It must be recognized by the IRS as exempt from federal income tax under I.R.C. Section 501(c)(3); and
• An organization made up of religious organizations can derive the exemption from its members only if all of its members are themselves exempt religious organizations, the group exists exclusively to help its members carry out their religious purpose, and it is itself a Section 501(c)(3) organization (citing Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970)).

Applying that test, the Department concluded: "The AAAA Center is not a church, nor is it an organization composed exclusively of churches. Accordingly, the center is not exempt under this provision. It also is not exempt under any other theory of sales tax exemption that I am aware of." The Department enclosed a copy of Notice 98-05, which explains its position on religious organizations.

What this means for you

Community and civic centers

Being a nonprofit, or serving the community, does not by itself qualify you for the religious-organization sales tax exemption. The exemption is narrow: it reaches churches and worship-centered groups, not general community centers, even ones that host some religious activity.

Construction projects

There is no "special exemption" a contractor can point you to that turns an otherwise-taxable construction project tax-free unless your organization independently qualifies under a specific statutory exemption. If you do not qualify, you (and your contractor) owe Kansas sales tax on project materials and taxable services the same as any other customer.

Qualifying religious organizations

A genuine religious organization must both meet the worship-at-an-established-place test and hold IRS Section 501(c)(3) recognition. An umbrella group can claim the exemption only if every one of its members is itself an exempt religious organization and the group exists solely to further its members' religious mission.

Common questions

Q: Does a community center qualify for the Kansas religious-organization sales tax exemption?
A: No. Unless it is a church or an organization composed exclusively of churches (and meets the IRS Section 501(c)(3) and place-of-worship requirements), it does not qualify.

Q: What makes an organization an exempt "religious organization" in Kansas?
A: It must gather for worship at an established place of worship it maintains for regularly scheduled religious services, earn no private profit for members, and be recognized by the IRS as exempt under Section 501(c)(3).

Q: Can a contractor get my organization a "special exemption" for a building project?
A: No. There is no special exemption available on request; the project is exempt only if your organization independently qualifies under a statutory exemption.

Citations and references

• 1999 Kan. Sess. Laws Chap. 154 Sec. 6(aaa) — the sales tax exemption for religious organizations that use exempt purchases exclusively for religious purposes (no K.S.A. section number is given in the letter).
• K.S.A. 79-4701(e); K.S.A. 8-1730a — definitional support for what constitutes a "religious organization."
• I.R.C. Section 501(c)(3) — the federal exemption a religious organization must hold to qualify.
• Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970) — cited for when an organization composed of religious organizations may derive the exemption from its members.
• Notice 98-05 — the Department's published guidance on religious organizations, enclosed with the letter.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: O-1999-027

Original ruling text

Opinion Letter

Body:

Office of Policy & Research

October 7, 1999

XXXX
XXXX
XXXX

RE: Your letter of September 23, 1999

Dear XXXX:

Thank you for your letter. You state that the AAA Center is involved in a number of construction projects. A contractor on one of the projects recently informed you that the center would be entitled to exemption from Kansas sales tax if you secured a “special exemption” from the department. You ask if the center is entitled to such a special exemption, and, if it is, for the paper work needed to claim it.

Please be advised that the exemption in question does not apply to your community center. It only applies to “religious organizations” that use the exempt purchases “exclusively for religious purposes.” 1999 Kan. Sess. Laws Chap. 154 Sec. 6 (aaa). The following discussion sets forth the department’s position on what is a “religious organization.”

I. What is an exempt religious organization?

a) For purposes of the Kansas retailers’ sales tax act, “religious organization” shall mean any organization, church, body of communicants, or other group that gathers in common membership for mutual support and edification, in piety, worship, and religious observance, at an established place of worship which the organization maintains for the purpose of conducting regularly scheduled religious services or meetings, and of which no part of the net earnings of such organization inures to the benefit of any private shareholder or individual member. See K.S.A. 79-4701(e); K.S.A. 8-1730a.
b) In order to qualify for exemption from sales tax, a religious organization must be recognized by the Internal Revenue Service (IRS) as exempt from federal income tax under I.R.C. §501(c)(3).
c) An organization that is composed of religious organizations may derive exemption from its members if all of its members are themselves exempt religious organizations and the derivative organization is organized and operated exclusively to assist its member organizations in carrying out their religious purpose. Such an organization must itself be exempt from tax under I.R.C. §501(c)(3). See Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970).

The AAAA Center is not a church, nor is it an organization composed exclusively of churches. Accordingly, the center is not exempt under this provision. It also is not exempt under any other theory of sales tax exemption that I am aware of.

I have enclosed a copy of Notice 98-05 that explains the department’s position on religious organizations. I hope that this clarifies the scope of the exemption and shows you the center is not exempt. If the notice and my letter do not adequately answer all of your questions, please call me at (785) 296-3081 and we can discuss this matter further.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Enclosure

Date Composed: 03/28/2000 Date Modified: 10/10/2001

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