Are a church-run day care center's purchases (such as water utilities) exempt from Kansas sales tax?

Plain-English summary

A church starting a day care center asked whether the day care's purchases of water from the city are subject to Kansas sales tax. The Department could not give a final answer without more facts, but it explained the rules that decide the question.

• Exemption for the day care itself. The Department had recently determined that sales to non-profit, nonsectarian day care providers — previously treated as exempt sales to "educational institutions" under K.S.A. 79-3606(c) — will continue to be exempt under K.S.A. 79-3606(ii) as sales to non-profit organizations that provide nonsectarian comprehensive multidiscipline youth development programs. If the day care qualifies, all of its purchases are exempt. But it must be a non-profit entity and nonsectarian, and the letter didn't say whether the day care was organized as non-profit or for profit.
• Where the day care operates matters. If the day care is housed within the church (or an administration building) and the church pays the water utilities, the purchase may be exempt as use that is minimal in scope, insubstantial in nature, and incidental to the church's own exempt use. If the day care is in a separate facility, it must qualify for exemption in its own right to exempt its purchases, including the water.

The Department asked the church to resubmit with its day care's legal structure, location, and a description of the preschoolers' daily activities before it would rule.

What this means for you

If you run — or a church is starting — a day care and want to buy utilities or supplies tax-free in Kansas, plan to prove two things.

• Non-profit and nonsectarian status. The 79-3606(ii) exemption is for non-profit, nonsectarian providers of a comprehensive multidiscipline youth development program. A for-profit day care does not qualify on this basis.
• Show the program. The Department wanted a description of the daily activities (often found in parent brochures) to test the "comprehensive multidiscipline youth development" standard.
• Location and who pays the bill count. A day care operating inside an exempt church, with the church paying, may ride the church's exemption if the use is minimal and incidental. A day care in its own separate facility must earn its own exemption.
• Expect to document, not just assert. The Department declined to rule until it had the organizational structure, the location, and the program details — so gather those before requesting exempt treatment.

Common questions

Can a day care buy water and other items exempt from Kansas sales tax?
Yes, if it qualifies as a non-profit, nonsectarian provider of a comprehensive multidiscipline youth development program under K.S.A. 79-3606(ii). Then all of its purchases are exempt.

Does a for-profit day care qualify?
Not under 79-3606(ii). The exemption requires a non-profit, nonsectarian organization, and the Department needed to know the day care's legal structure before deciding.

What if the day care operates inside the church?
If the church pays the water bill and the day care use is minimal, insubstantial, and incidental to the church's exempt use, the purchase may be exempt under the church's exemption. A day care in a separate facility must qualify on its own.

Why didn't the Department just answer yes or no?
Because the letter didn't say whether the day care was non-profit or for profit, or where it was housed. The Department asked the church to resubmit with its structure, location, and daily activities.

Citations and references

• K.S.A. 79-3606(ii) — exempts sales to non-profit organizations providing nonsectarian comprehensive multidiscipline youth development programs and activities; a qualifying non-profit, nonsectarian day care's purchases are all exempt under this subsection.
• K.S.A. 79-3606(c) — the "educational institutions" exemption under which the Department previously exempted such day care providers before treating them under 79-3606(ii).

Source

• Original ruling (DOCX): https://www.ksrevenue.gov/pildocs/rulings/P-1999-42.docx
• Kansas Policy Information Library: https://www.ksrevenue.gov/prpil.html

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 26, 1999

XXXX
XXXX
XXXX

RE: Your letter dated November 21, 1998

Dear XXXX:

I have been asked to answer your letter received in November. You state that your church is starting a day care center and ask whether its purchases of water from the City of ZZZ are subject to Kansas sales tax.

The department recently determined that sales to non-profit, nonsectarian day care providers, which the department previously exempted as sales to “educational institutions” under K.S.A. 79-3606(c), will continue to be exempt under K.S.A. 79-3606(ii) as sales to non-profit organizations that provide nonsectarian comprehensive multidiscipline youth development programs and activities. This means that all purchases by a day care provider are exempt if the provider qualifies as a nonsectarian comprehensive multidiscipline youth development program. To qualify for exemption your day care must be a non-profit entity and be nonsectarian. You letter does not mention whether your day care is organized as a non-profit enterprise or is organized for profit. Accordingly, I need more information about your day care’s legal structure to answer to your question.

Your letter also does not state where the day care center is housed. If the day care is held within the church or in one of its administration buildings and the church pays for the water utilities, the purchase may be exempt. Such use is exempt if it is minimal in scope, insubstantial in nature, and incidental to the church’s exempt use. If the day care operates in a separate facility, the day care would have to qualify for exemption in its own right to be able to exempt its purchases, which would include purchase of the water utilities.

Please resubmit your request along with information that describes how your day care center is organized and where it is located. Please describe the daily activities scheduled for the preschoolers. This information is probably contained in brochures or other information that you give to parents. Once I receive the information, I will answer your questions.

Sincerely,

Thomas E. Hatten

Attorney/Policy & Research

Date Composed: 03/16/1999 Date Modified: 10/11/2001

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