Are a not-for-profit organization's membership dues and fund-raising sales subject to Kansas sales tax?

Plain-English summary

A not-for-profit organization asked how Kansas sales tax applies to its memberships. The Department explained the dues rule, said it could not decide the question on the facts given, and then addressed the organization's fund-raising sales.

Membership dues — taxable only if there is a recreation or entertainment facility. The Department quoted the imposition statute, K.S.A. 79-3603(n), which taxes "the gross receipts received from dues charged by public and private clubs, drinking establishments, organizations and businesses, payment of which entitles a member to the use of facilities for recreation or entertainment" (with exceptions, including dues of certain property-tax-exempt organizations and memberships in a 501(c)(3) that supports a nonprofit zoo). The Department stressed that "[t]he only requirement is that the payment of the due grants the payee access to a facility for recreation or entertainment." Because the request "does not contain any information regarding if your club maintains a facility for use by members for the purpose of entertainment or recreation," the Department said it was "unable to advise you on the taxability of your membership sales."

Fund-raising sales — taxable no matter how the money is used. The Department noted that any not-for-profit selling tangible personal property at retail, or furnishing services or entertainment to the final consumer, "shall be a retailer as defined in K.S.A. 79-3602(d)." So if the organization runs "fund raising activities, such as carnivals, bake sales, etc.," it "is required to collect and remit sales tax on the gross receipts from all retail transactions." Critically, "[t]he ultimate use of the funds is not determinative of whether the gross receipts from such sales are subject to sales tax." (See K.A.R. 92-19-67.)

But resale purchases can be bought tax-free. Items the organization buys specifically to resell at a fund-raiser "are purchases for resale and may be purchased by the retailer exempt from sales tax." To do that, the organization "must hold a valid Kansas retailers' sales tax registration number" and give its supplier "a valid resale exemption certificate."

What this means for you

Clubs and membership organizations

Whether your dues are taxable turns on one fact: does paying the dues give members access to a facility for recreation or entertainment? If yes, the dues are generally taxable under K.S.A. 79-3603(n); if there is no such facility, this imposition does not reach them. The Department will not rule without knowing that fact.

Nonprofits that hold fund-raisers

Selling goods at a bake sale, carnival, or similar event is a taxable retail sale, and being a charity does not change that — "the ultimate use of the funds is not determinative." Register for a Kansas sales tax account and collect tax on those receipts.

Buy resale inventory tax-free with a certificate

Goods you purchase to resell at the event are not taxed to you if you hold a Kansas retailers' sales tax registration number and give the vendor a valid resale exemption certificate. You then collect the tax from your buyers.

Common questions

Q: Are our membership dues taxable?
A: Only if paying them entitles members to use a facility for recreation or entertainment. The Department could not decide this ruling because the request did not state whether the club maintains such a facility.

Q: Do we owe sales tax on bake-sale or carnival proceeds even though we are a nonprofit?
A: Yes. A not-for-profit that sells at retail is a "retailer" under K.S.A. 79-3602(d), and the tax applies to those gross receipts regardless of how the funds are ultimately used.

Q: Can we buy the items we plan to resell without paying sales tax?
A: Yes — they are purchases for resale. You must hold a valid Kansas retailers' sales tax registration number and give the supplier a valid resale exemption certificate.

Citations and references

• K.S.A. 79-3603(n) — imposes sales tax on dues charged by clubs, organizations, and businesses where payment entitles the member to use facilities for recreation or entertainment (with listed exceptions). The Department could not apply it without knowing whether the club maintains such a facility.
• K.S.A. 79-3602(d) — defines "retailer"; a not-for-profit selling goods, services, or entertainment to the final consumer is a retailer that must collect tax on its retail (including fund-raising) sales.
• K.A.R. 92-19-67 — the regulation, cited by the Department, addressing sales by nonprofit and fund-raising organizations; the ultimate use of the funds does not determine taxability, and resale purchases may be made tax-free with a resale exemption certificate.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-16

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 5, 1999

XXXXXXXXXXXXXXX
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Dear XXXXXXXXXXX:

The purpose of this letter is to respond to your letter dated January 13, 1999.

The statute that imposes the tax on memberships is K.S.A. 79-3603(n), the statute states:

" the gross receipts received from dues charged by public and private clubs, drinking establishments, organizations and businesses, payment of which entitles a member to the use of facilities for recreation or entertainment, but such tax shall not be levied and collected upon the gross receipts received from: (1) Dues charged by any organization exempt from property taxation pursuant to paragraphs Eighth and Ninth of K.S.A. 79-201, and amendments thereto,; and (2) sales of memberships in a nonprofit organization which is exempt from federal income taxation pursuant to section 501 (c)(3) of the federal internal revenue code of 1986, and whose purpose is to support the operation of a nonprofit zoo;"

As stated the law broadly imposes sales tax on dues charges. The only requirement is that the payment of the due grants the payee access to a facility for recreation or entertainment. Your letter does not contain any information regarding if your club maintains a facility for use by members for the purpose of entertainment or recreation. Therefore, I am unable to advise you on the taxability of your membership sales.

Any Not-for-Profit entity (unless specially exempt by statute) engaged in the business of selling tangible personal property at retail or furnishing services or entertainment to the ultimate user or consumer, and not for resale, shall be a retailer as defined in K.S.A. 79-3602(d).

If your organization engages in fund raising activities, such as carnivals, bake sales, etc., it is required to collect and remit sales tax on the gross receipts from all retail transactions subject to tax under the Retailers' Sales Tax Act. The ultimate use of the funds is not determinative of whether the gross
receipts from such sales are subject to sales tax. See K.A.R. 92-19-67 in attached Appendix. The sales tax is imposed only on retail sales (sales to the final user or consumer) items that are purchased for a fund raising event are purchases for resale and may be purchased by the retailer exempt from sales tax. To purchase these items without sales tax, the retailer must hold a valid Kansas retailers' sales tax registration number and must provide the retailer with a valid resale exemption certificate.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

Date Composed: 02/16/1999 Date Modified: 10/11/2001

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