Must a church athletic foundation collect Kansas sales tax on sports participation fees paid by its members?

Plain-English summary

A church athletic foundation asked whether it must collect Kansas sales tax on the fees its members pay to participate in sports.

Participation fees are generally taxable — with a 1998 carve-out. The Department explained that "K.S.A. 79-3603(m) taxes fees charged to participate in sports and other recreational activities," and that "the 1998 legislature expanded the exceptions in K.S.A. 79-3603(m) to exempt fees paid to organizations that are exempt from property tax under the Ninth paragraph of K.S.A. 79-201." As amended by 1998 Senate Bill 493, the statute exempts, among other things, gross receipts from "[f]ees and charges by any political subdivision, by any organization exempt from property taxation pursuant to paragraph Ninth of K.S.A. 79-201 ... or by any youth recreation organization exclusively providing services to persons 18 years of age or younger which is exempt from federal income taxation pursuant to section 501(c)(3)."

The holding. "The documentation that you provided establishes that your foundation qualifies for exemption from property tax under the Ninth paragraph of K.S.A. 79-201. Therefore, you are no longer required to collect sales tax on the participation fees paid by your members to participate in sports." But the Department added: "your foundation must continue to pay sales tax on its purchases, since there is no exemption for such purchases."

Bottom line: because the foundation is exempt from property tax under the Ninth paragraph of K.S.A. 79-201, it does not collect sales tax on members' sports-participation fees — yet it still pays sales tax on its own purchases.

What this means for you

The exemption runs through the property-tax status

The 1998 amendment to K.S.A. 79-3603(m) keys the participation-fee exemption to being exempt from property tax under the Ninth paragraph of K.S.A. 79-201. An organization must actually hold that property-tax exemption to qualify.

Participation fees are otherwise taxable

K.S.A. 79-3603(m) taxes fees to participate in sports, games, and other recreational activities. Absent a listed exception — a political subdivision, a 79-201-Ninth property-tax-exempt organization, or a qualifying 501(c)(3) youth recreation organization — those fees are taxable.

The exemption is on the fees, not on purchases

Qualifying relieves the foundation of collecting tax on the participation fees it charges, but it does not exempt the foundation's own purchases. Those remain taxable.

Keep documentation of the 79-201 exemption

The Department relied on the documentation showing the foundation's property-tax exemption. An organization claiming this fee exemption should be able to prove its 79-201 Ninth-paragraph status.

Common questions

Q: Are sports participation fees taxable in Kansas?
A: Generally yes, under K.S.A. 79-3603(m) — unless a statutory exception applies.

Q: Why were this foundation's fees exempt?
A: Because it qualifies for property-tax exemption under the Ninth paragraph of K.S.A. 79-201, which the 1998 amendment to 79-3603(m) treats as exempting the participation fees it charges.

Q: Does the exemption cover the foundation's purchases?
A: No. The foundation must continue to pay sales tax on its own purchases; there is no exemption for those.

Q: What other organizations get the participation-fee exemption?
A: Political subdivisions, organizations exempt from property tax under 79-201 Ninth, and 501(c)(3) youth recreation organizations exclusively serving persons 18 or younger.

Citations and references

• K.S.A. 79-3603(m) (as amended by 1998 Senate Bill 493) — taxes fees and charges for participation in sports, games, and other recreational activities, but exempts fees charged by a political subdivision, by an organization exempt from property tax under the Ninth paragraph of K.S.A. 79-201, or by a qualifying 501(c)(3) youth recreation organization.
• K.S.A. 79-201, paragraph Ninth — the property-tax exemption whose qualifying organizations are relieved from collecting sales tax on participation fees under the amended K.S.A. 79-3603(m).
• K.A.R. 92-19-59 — the regulation authorizing private letter rulings; this ruling was issued under it and binds the Department only as to the requesting taxpayer.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1998-195

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

November 13, 1998

XXXX
XXXX
XXXX

RE: Your letter dated October 23, 1998

Dear XXXX:

I have been asked to respond to the letter that you sent to Shirley Sicilian last month. In it, you ask whether the XXXX Church Athletic Foundation is exempt from collecting sales tax on fees that its members pay to participate in sports. K.S.A. 79-3603(m) taxes fees charged to participate in sports and other recreational activities. As you are aware, the 1998 legislature expanded the exceptions in K.S.A. 79-3603(m) to exempt fees paid to organizations that are exempt from property tax under the Ninth paragraph of K.S.A. 79-201.

As amended by 1998 Senate Bill 493, K.S.A. 79-3603(m) taxes:

the gross receipts received from fees and charges by public and private clubs, drinking establishments, organizations and businesses for participation in sports, games and other recreational activities, but such tax shall not be levied and collected upon the gross receipts received from: (1) Fees and charges by any political subdivision, by any organization exempt from property taxation pursuant to paragraph Ninth of K.S.A. 79-201, and amendments thereto, or by any youth recreation organization exclusively providing services to persons 18 years of age or younger which is exempt from federal income taxation pursuant to section 501(c)(3) of the federal internal revenue code of 1986, for participation in sports, games and other recreational activities; and (2) entry fees and charges for participation in a special event or tournament sanctioned by a national sporting association to which spectators are charged an admission which is taxable pursuant to subsection (e).

The documentation that you provided establishes that your foundation qualifies for exemption from property tax under the Ninth paragraph of K.S.A. 79-201. Therefore, you are no longer required to collect sales tax on the participation fees paid by your members to participate in sports. Please note that your foundation must continue to pay sales tax on its purchases, since there is no exemption for such purchases.

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 by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 11/23/1998 Date Modified: 10/10/2001

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