Which of two related religious entities qualifies for the Kansas religious-organization sales tax exemption, and how must exempt purchases be documented?

Plain-English summary

The taxpayer asked how the Kansas religious-organization sales tax exemption applies to its organizations. The Department set out the statutory rule and reached a split result.

The exemption and definition. 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." A "religious organization" is a group that gathers for worship "at an established place of worship which the organization maintains for the purpose of conducting regularly scheduled religious services," with no private inurement — and an organization composed of religious organizations can derive the exemption from its members under the statute's derivative test.

A split result. The Department found that one entity "does meet the established criteria, as set out in Notice 98-05, to be extended a sales tax exemption as a religious organization, since the organization is carrying out the ministry of the church." But as to a related entity, "based upon the information that you presented to this office, there is not a basis to support an exemption from Kansas sales/use tax … as a religious organization."

The direct-purchase requirement. The Department stressed how exempt purchases must be made: "in order for a qualified purchase to be made exempt from Kansas sales/use tax, the respective purchase needs to be made directly by [the exempt entity]. Therefore, each bill, invoice, contract or other evidence of the transaction shall be made out in the name of [the exempt entity], and payment shall be made on a check, warrant or voucher of the exempt entity." The Department enclosed Notice 98-05.

Bottom line: qualifying is entity-specific. An entity carrying out the ministry of the church met the religious-organization criteria; a related entity, on the facts presented, did not. And even a qualifying entity keeps its exemption only if it buys directly — invoices in its name, paid from its own funds.

What this means for you

Qualification is judged entity by entity

Two organizations under the same religious umbrella can land on opposite sides of the line. The one "carrying out the ministry of the church" qualified; a related entity did not on the facts presented. Each organization must independently meet the statutory definition.

The purchase must be truly the exempt entity's

The exemption only reaches purchases the exempt entity makes directly. The invoice, contract, or other evidence must be in the exempt entity's name, and payment must come from the exempt entity's own check, warrant, or voucher. A purchase run through an individual or a non-exempt affiliate is not exempt.

Use Notice 98-05 as the checklist

The Department measured eligibility against the criteria in Notice 98-05, "Sales Taxation of Purchases by Religious Organizations." An organization should work through that notice before claiming the exemption.

"Carrying out the ministry of the church" is the touchstone

The qualifying entity's status rested on its carrying out the ministry of the church. Organizations whose religious connection is looser — or that cannot show they meet the place-of-worship/regularly-scheduled-services definition — risk the denial the related entity received.

Common questions

Do all of our affiliated religious entities share one exemption?
No. Each entity must independently meet the statutory definition. Here, one entity qualified and a related one did not.

What made the qualifying entity eligible?
It met the Notice 98-05 criteria and was carrying out the ministry of the church, satisfying the K.S.A. 79-3606(aaa) definition of a religious organization.

How do we actually make an exempt purchase?
The bill, invoice, or contract must be in the exempt entity's name, and payment must be made with the exempt entity's own check, warrant, or voucher. Buy directly — not through an individual or affiliate.

Where are the rules written down?
See Notice 98-05, "Sales Taxation of Purchases by Religious Organizations," enclosed with the 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 definition of "religious organization" and the derivative-organization test.
• Notice 98-05 — "Sales Taxation of Purchases by Religious Organizations," the criteria the Department applied; 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 September 17, 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-1998-163

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 17, 1998

TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT
TTTTTTTTTTT

Dear Mr. TTTTTT:

We wish to acknowledge receipt of your letter dated August 25, 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 it is the opinion of this office, that TTTTTTTTTTTTTTT does meet the established criteria, as set out in Notice 98-05, to be extended a sales tax exemption as a religious organization, since the organization is carrying out the ministry of the church. However, 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 TTTTTTTTTTT, as a religious organization.

It should be noted that in order for a qualified purchase to be made exempt from Kansas sales/use tax, the respective purchase needs to be made directly by TTTTTTTTTTTTTTTT. Therefore, each bill, invoice, contract or other evidence of the transaction shall be made out in the name of TTTTTTTTTTTT, and payment shall be made on a check, warrant or voucher of the exempt entity.

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

Date Composed: 10/19/1998 Date Modified: 10/10/2001

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