What must an organization show to qualify as an exempt 'religious organization' under Kansas sales tax law, and did this taxpayer qualify?

Plain-English summary

An organization asked whether it qualifies for the Kansas sales tax exemption for religious organizations. The Department set out the statutory definition and applied it.

The exemption. K.S.A. 79-3606(aaa) exempts "all sales of tangible personal property and services purchased by a religious organization which is exempt from federal income taxation pursuant to section 501(c)(3) of the federal internal revenue code, and used exclusively for religious purposes."

The narrow definition of "religious organization." For purposes of the Kansas act, a "religious organization" is "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 … inures to the benefit of any private shareholder or individual member." The statute also allows a derivative exemption: an organization "composed of religious organizations" can derive exemption from its members if all its members are themselves exempt religious organizations and it is "organized and operated exclusively to assist its member organizations in carrying out their religious purpose."

This taxpayer did not qualify. "Based upon the information that you presented to this office, there is not a basis to support an exemption from Kansas sales/use tax for [the taxpayer] as a religious organization." The Department enclosed Notice 98-05, "Sales Taxation of Purchases by Religious Organizations."

Bottom line: qualifying as a "religious organization" is not just about a religious mission or 501(c)(3) status. The organization must maintain an established place of worship for regularly scheduled services (or fit the derivative-organization test). On the facts presented, this taxpayer did not, so its purchases are not exempt.

What this means for you

The definition has concrete requirements

The key elements are: common membership for worship and religious observance; an established place of worship the organization maintains; regularly scheduled religious services or meetings there; and no private inurement of net earnings. An organization that cannot show all of these does not fit the statutory definition.

501(c)(3) status is necessary but not sufficient

The exemption requires federal 501(c)(3) status and that purchases be used exclusively for religious purposes — but the organization must also satisfy the Kansas definition of "religious organization." Federal tax-exempt status alone does not qualify it.

The derivative route is available for umbrella bodies

An organization made up entirely of exempt religious organizations, existing solely to help its members carry out their religious purpose, can derive the exemption from its members. That is a distinct path for councils or associations of churches.

Read Notice 98-05

The Department's Notice 98-05 explains how the religious-organization exemption works. An organization evaluating its eligibility should review it before relying on the exemption or giving a vendor an exemption certificate.

Common questions

We're a religious nonprofit — are we exempt from Kansas sales tax?
Not automatically. You must meet the statutory definition of "religious organization": an established place of worship you maintain for regularly scheduled services, common membership for worship, and no private inurement — plus 501(c)(3) status and religious-purpose use.

Why was this taxpayer denied?
Based on the information presented, the Department found no basis to treat it as a "religious organization" within the statutory definition.

Is there any other way to qualify?
Yes — the derivative test. An organization composed entirely of exempt religious organizations, operated exclusively to help those members carry out their religious purpose, can derive the exemption from its members.

Where can I read the rules?
See Notice 98-05, "Sales Taxation of Purchases by Religious Organizations," which the Department enclosed with this ruling.

Citations and references

• K.S.A. 79-3606(aaa) — exempts sales of tangible personal property and services purchased by a 501(c)(3) religious organization and used exclusively for religious purposes; includes the statutory definition of "religious organization" (established place of worship, regularly scheduled services, no private inurement) and the derivative-organization test.
• Notice 98-05 — "Sales Taxation of Purchases by Religious Organizations," enclosed with the ruling.
• K.A.R. 92-19-59 — authorizes Kansas private letter rulings; this ruling binds the Department only as to the requesting taxpayer and the facts presented.
• Issued October 21, 1998 by Thomas P. Browne, Jr., Tax Specialist, Office of Policy & Research, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-172

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 21, 1998

TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT

Dear Ms. TTTT:

We wish to acknowledge receipt of your letter dated September 23, 1998, regarding the application of Kansas Retailers’ Sales tax.

K.S.A. 79-3606(aaa) exempts from sales tax: “all sales of tangible personal property and services purchased by a religious organization which is exempt from federal income taxation pursuant to section 501(c)(3) of the federal internal revenue code, and used exclusively for religious purposes.”

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. Further, 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.

Please be advised, that based upon the information that you presented to this office, there is not a basis to support an exemption from Kansas sales/use tax for TTTTTTTTTTT as a religious organization.

For your convenience, I have enclosed Notice 98-05 entitled, “Sales Taxation of Purchases by Religious Organizations”.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling. If I may be of further assistance, please contact me at your earliest convenience at (785) 296-7776.

Sincerely yours,

Thomas P. Browne, Jr.
Tax Specialist

TPB

Enc

c: Bob Clelland

Date Composed: 10/29/1998 Date Modified: 10/10/2001

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