Are a fraternal organization's membership dues subject to Kansas sales tax?

Plain-English summary

A fraternal organization — a federally qualified 501(c)(8) with many local subordinate councils across Kansas — asked whether its members' dues are subject to Kansas sales tax. The organization pointed out a split among its local units: most hold meetings and do not own any facility for recreation or entertainment (their dues fund administrative or charitable purposes), while fewer than ten percent indirectly oversee such a facility, usually through a separate Kansas corporation formed to own and operate it.

The Department applied K.S.A. 79-3603(n), which imposes sales tax on "the gross receipts received from dues charged by public and private clubs, drinking establishments, organizations and business, payment of which entitles a member to use of facilities for recreation or entertainment," subject to listed exceptions (such as dues of organizations exempt from property tax under paragraphs Eighth and Ninth of K.S.A. 79-201, and certain nonprofit memberships that support a nonprofit zoo).

The result splits with the facts: local units that maintain a facility for recreation or entertainment — whether directly or indirectly — must continue to collect and remit sales tax on their membership dues. Local units that do not maintain or provide such a facility are not required to remit sales tax on their dues. The Department attached an appendix on refunds and credits.

What this means for you

If your club, lodge, or fraternal group charges dues in Kansas, the taxability turns on one question: do the dues buy access to a recreation or entertainment facility?

• The facility test controls. Dues are taxable under 79-3603(n) when payment entitles a member to use facilities for recreation or entertainment. No such facility, no tax on the dues.
• "Indirectly" still counts. Owning the facility through a separate corporation the local unit oversees does not avoid the tax — a facility maintained indirectly triggers taxable dues just as a directly owned one does.
• Units within one organization can differ. In a network of local councils, some units may owe tax on dues while others don't, depending on whether each maintains a facility. Analyze each unit's facts.
• Check the statutory exceptions. 79-3603(n) exempts, among others, dues of organizations exempt from property tax under paragraphs Eighth and Ninth of K.S.A. 79-201, and certain nonprofit memberships supporting a nonprofit zoo — see whether an exception fits before collecting.

Common questions

Are membership dues taxable in Kansas?
Only when payment of the dues entitles a member to use facilities for recreation or entertainment, under K.S.A. 79-3603(n). Dues that don't buy access to such a facility are not taxed on that basis.

What if the organization owns its facility through a separate corporation?
It still counts. A local unit that maintains a recreation or entertainment facility indirectly — for example, through a separate corporation it oversees — must collect sales tax on its dues, just as if it owned the facility directly.

Our local group only holds meetings and owns no facility — do we owe tax on dues?
No. Units that do not maintain or provide a facility for recreation or entertainment are not required to remit sales tax on their dues.

Are there exceptions to the dues tax?
Yes. 79-3603(n) does not tax dues of organizations exempt from property taxation under paragraphs Eighth and Ninth of K.S.A. 79-201, or certain nonprofit memberships whose purpose is to support the operation of a nonprofit zoo, among others.

Citations and references

• K.S.A. 79-3603(n) — imposes sales tax on gross receipts from dues charged by clubs, drinking establishments, organizations, and businesses where payment entitles a member to use facilities for recreation or entertainment; organizations maintaining such a facility (directly or indirectly) must remit tax on dues, while those without one need not.
• K.S.A. 79-201 (paragraphs Eighth and Ninth) — referenced within 79-3603(n): dues of organizations exempt from property taxation under those paragraphs are excepted from the dues tax.

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1999-38.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 12, 1999

XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX

Dear XXXXXXXXXX:

The purpose of this letter is to respond to your letter dated November 18, 1998.

In your letter you stated:

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. The international organization is a qualified 501(c)(8) under the Internal Revenue Code.

The majority of Kansas subordinate councils operate within their XXXXXXXX, holding meetings in the XXXXXXXXXXX. These XXXXXXX do not own, directly or indirectly, any facility used for recreation or entertainment. While their members pay dues, those funds are used for administrative or charitable purposes. Some members do not pay dues because of age or disability. Less than ten percent (10%) of the Kansas XXXXXXXX indirectly oversee a facility for recreation or entertainment. Such XXXXXXX may not own such property in name of the local XXXXXX. Most have formed a separate Kansas corporation to own and operate the facility. Members of the local XXXXXXX oversee the operation of this separate corporation. Meetings and other functions are often held at those facilities.

In essence there is a dichotomy among the XXXXXXXXXXXX in the state of Kansas. While all XXXXXXcharge dues, the majority do not own a facility. Consequently, such dues should not be subject to tax since they do not meet the criteria of K.S.A. 79-3603(n).

You request a private letter ruling to confirm your interpretation of this law.

K.S.A. 79-3603(n) imposes a sales tax upon: “the gross receipts received from dues charged by public and private clubs, drinking establishments, organizations and business, payment of which entitles a member to use of facilities for recreation or entertainment, but such tax shall not be levied and collected upon 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. . .”

It is the opinion of the Kansas Department of Revenue that dues charged to members of organizations, for which payment allows access to facility for recreation or entertain remain subject to Kansas retailers’ sales tax. XXXXXXX that maintain a facility for recreation or entertainment, whether directly or indirectly must continue to remit sales tax on membership fees. XXXXXX that do not maintain or provide a facility for recreation or entertainment are not required to remit sales tax on their dues.

I have attached an Appendix that concerns refunds and credits, for your use.

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

MDC

Date Composed: 03/02/1999 Date Modified: 10/11/2001

Table 1

Table 2