Does a 501(c)(3) counseling agency qualify for the Kansas religious-organization sales tax exemption?

Plain-English summary

A 501(c)(3) nonprofit counseling-services agency — with locations in another state and in Kansas, and holding sales/use tax exemption in that other state — asked Kansas to grant it the same exemption for the supplies and services it uses. It framed the question as whether it "qualifies as a religious organization for purposes of Kansas sales tax."

The exemption and definition. K.S.A. 79-3606(aaa) exempts sales to "a religious organization which is exempt from federal income taxation pursuant to section 501(c)(3) . . . and used exclusively for religious purposes." Quoting Notice 98-05, the Department defined a "religious organization" as 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," with no net earnings inuring to any private member.

The derivative and mixed-membership rules. A group "composed of religious organizations may derive exemption from its members" only if "all of its members are themselves exempt religious organizations" and it exists exclusively to help them carry out their religious purpose (citing Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970)). But "[c]haritable organizations that are composed of churches, businesses, and lay persons . . . are not composed exclusively of churches or other religious organizations . . . . Therefore, these groups do not qualify as a religious organization."

The holding. "[Y]our organization does not meet the necessary criteria to be a religious organization exempt pursuant to K.S.A. 79-3606(aaa)."

Bottom line: a counseling agency, even a 501(c)(3) that is exempt in another state, is not a Kansas "religious organization." It does not gather for worship at an established place of worship and is not composed exclusively of religious organizations, so it does not qualify for the K.S.A. 79-3606(aaa) exemption — and another state's exemption does not transfer to Kansas.

What this means for you

Another state's exemption does not carry over

A sales/use tax exemption granted by another state has no effect in Kansas. Kansas applies its own statutory definitions; you must qualify under Kansas law to buy exempt here.

"Religious organization" is a specific Kansas test

To qualify under K.S.A. 79-3606(aaa), a group generally must gather for worship at an established place of worship it maintains for regularly scheduled religious services. A social-service or counseling mission, however faith-adjacent, does not by itself meet that test.

Mixed membership breaks the derivative route

An umbrella group can inherit the exemption only if all its members are exempt religious organizations. Once businesses or lay persons are members, the group is not composed exclusively of religious organizations and does not qualify.

Common questions

Q: Does a 501(c)(3) counseling agency qualify as a Kansas religious organization?
A: No. The Department found it "does not meet the necessary criteria to be a religious organization exempt pursuant to K.S.A. 79-3606(aaa)."

Q: We're exempt in another state — does Kansas honor that?
A: No. An exemption in another state does not transfer; you must qualify under Kansas's own definition to buy exempt in Kansas.

Q: What kind of organization does qualify?
A: Generally one that gathers for worship and religious observance at an established place of worship it maintains for regularly scheduled services — or an umbrella group all of whose members are themselves exempt religious organizations.

Citations and references

• K.S.A. 79-3606(aaa) — exempts sales to a 501(c)(3) religious organization for property/services used exclusively for religious purposes; the exemption the agency sought and was denied.
• Notice 98-05 — the Department's guidance defining "religious organization" and the all-members derivative test.
• Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970) — cited (via Notice 98-05) for when an organization composed of religious organizations may derive the exemption from its members.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-148

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

July 2, 1999

XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXX

Dear XXXXXXXXXXXX:

I have been asked to respond to your letter dated February 15, 1998. In it, you ask if your organization qualifies as a religious organization for purposes of Kansas sales tax.

In your letter you stated:

I am requesting a private letter ruling regarding sale and use tax exemption status in the state of Kansas XXXXXXXX. XXXXXXX is a 501(c)(3) non-for-profit corporation with locations in XXXXXXX and Kansas. A copy of our determination letter from the Internal Revenue Service is enclosed for your information. We are a XXXXXXXX which has been in existence since XXXXXXX providing services to the XXXXXXXXXXX area. The major services we provide are counseling services XXXXXXXXXXXXXXXXXXX.

We have sales and use tax exemption status in XXX as evidenced by the enclosed copy of our exemption letter XXX and request that the state of Kansas allow XXXX the same sales and use tax exemption status in Kansas for the purchase of supplies services used by our agency.

Kansas sales tax law 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. . .” K.S.A. 79-3606(aaa).

For purposes of the Kansas retailers’ sales tax act, the term “religious organization” means 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. Notice 98-05; See K.S.A. 79-4701(e); K.S.A. 8-1730a. 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. Such an organization must itself be exempt from tax under I.R.C. §501(c)(3). Notice 98-05; See Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970).

Charitable organizations that are composed of churches, businesses, and lay persons are separately incorporated organizations that are not composed exclusively of churches or other religious organizations, but include lay people and businesses. Therefore, these groups do not qualify as a religious organization for purposes of the exemption extended at K.S.A. 1998 Supp.79-3606(aaa).

It is the opinion of the Kansas Department of Revenue that your organization does not meet the necessary criteria to be a religious organization exempt pursuant to K.S.A. 79-3606(aaa).

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 affects this private letter ruling.

Sincerely,

Mark D. Ciardullo
Tax Specialist

MDC

Date Composed: 07/09/1999 Date Modified: 10/11/2001

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