Does an organization qualify as a Kansas 'religious organization' exempt from sales tax if it lacks an established place of worship?

Plain-English summary

An organization asked whether it qualifies for the Kansas religious-organization sales tax exemption.

The exemption and its definition. The Department quoted K.S.A. 79-3606(aaa), which 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) … and used exclusively for religious purposes." It then set out the statutory definition: a "religious organization" is a 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." An organization "composed of religious organizations" may derive the exemption from its members under the derivative test.

The organization did not qualify. "[I]t is the opinion of this office[] that [the organization] does not meet the established criteria, as set out in Notice 98-05, to be extended a sales tax exemption as a religious organization." The Department enclosed Notice 98-05, "Sales Taxation of Purchases by Religious Organizations."

Bottom line: merely being a nonprofit with a religious or charitable flavor is not enough. To claim the Kansas religious-organization exemption, an entity must fit the specific statutory definition — an established place of worship, regularly scheduled services, no private inurement — or qualify under the derivative test. This organization did not, so it is not exempt.

What this means for you

The definition is specific and controlling

The Kansas exemption is limited to organizations that meet the statutory definition in K.S.A. 79-3606(aaa): a membership that gathers for worship at an established place of worship maintained for regularly scheduled services, with no private inurement. Falling short of any of these elements defeats the exemption.

An association can qualify only through the derivative test

A group made up of religious organizations can derive the exemption from its members, but only if all its members are themselves exempt religious organizations and it exists exclusively to help them carry out their religious purpose.

501(c)(3) status alone is not enough

Federal tax-exempt status does not by itself make an organization a Kansas "religious organization." The state definition adds the place-of-worship and regular-services requirements.

Compare your facts to Notice 98-05

The Department measured the organization against the criteria in Notice 98-05. An entity considering this exemption should compare its own structure and activities to that guidance before claiming exempt status.

Common questions

What makes an organization a "religious organization" in Kansas?
Under K.S.A. 79-3606(aaa), it must gather in common membership for worship at an established place of worship it maintains for regularly scheduled services, with no private inurement — or qualify under the derivative test for an association of religious organizations.

Why didn't this organization qualify?
The Department found it did not meet the criteria set out in Notice 98-05 for a religious-organization exemption.

Is being a 501(c)(3) enough?
No. The organization must also satisfy the Kansas statutory definition, including the established-place-of-worship and regularly-scheduled-services requirements.

Can an umbrella group of religious organizations qualify?
Yes, but only through the derivative test — all members must be exempt religious organizations and the group must exist exclusively to assist them in their religious purpose.

Citations and references

• K.S.A. 79-3606(aaa) — exempts purchases of tangible personal property and services by a 501(c)(3) religious organization used exclusively for religious purposes, and supplies the statutory definition of "religious organization" the Department applied.
• Notice 98-05, "Sales Taxation of Purchases by Religious Organizations" — the Department's guidance whose criteria this organization did not meet; 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 August 27, 1998 by Thomas P. Browne, Jr., Tax Specialist, Kansas Department of Revenue.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-115

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

August 27, 1998

TTTTTTTTTT
TTTTTTTTTT
TTTTTTTTTT
TTTTTTTTTT

Dear Ms. TTTTTT:

We wish to acknowledge receipt of your letter dated August 4, 1998, regarding the application of Kansas Retailers’ Sales tax.

This is a private letter ruling pursuant to K.A.R. 92-19-59.

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 it is the opinion of this office, that TTTTTTTT., does not meet the established criteria, as set out in Notice 98-05, to be extended a sales tax exemption as a religious organization.

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

This response 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 an accurate determination by the department, this ruling is null and void. This private letter 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

Date Composed: 09/14/1998 Date Modified: 10/10/2001

Table 1

Table 2