Must a church-run ministerial alliance collect sales tax on thrift-shop sales, and are its building materials exempt?

Plain-English summary

A small-community ministerial alliance — a 501(c)(3) whose only members are local churches — asked two questions about its charitable operations. It runs senior transportation, a meals-on-wheels route, a thrift shop and food pantry, and volunteer home-repair and emergency-relief programs. In the thrift shop, donated clothes and household goods are sold at very low prices (10–50 cents), mostly to offset utilities and insurance on the building.

Question 1 — Must the alliance charge sales tax on thrift-shop items?
Yes. The Department answered that a religious organization that engages in a retail sale is required to register, collect, and remit Kansas retailers' sales tax. Being a religious or charitable organization does not exempt the organization from collecting tax on the goods it sells at retail — even when the goods were donated and are sold cheaply to fund the ministry.

Question 2 — Is the alliance liable for sales tax on materials to build an addition to the thrift shop building (which will also expand the no-charge food pantry)?
Purchases of materials for the project are exempt if certain procedures are followed, and the correct procedure depends on who buys the materials:

• Direct purchases by the organization — exempt. The alliance buys the materials directly from a retailer and issues exemption certificate ST-28O.
• Purchases through a contractor — the alliance must first obtain a project exemption certificate from the Kansas Department of Revenue. It applies by submitting form PR-76. Once the Department approves and issues the project exemption certificate, the contractor may buy the materials incorporated into the project without paying sales tax.

The through-line: exemption on the construction side is available, but only if the organization uses the correct mechanism (ST-28O for its own direct buys, or a PR-76 project exemption certificate when a contractor is doing the furnish-and-install work).

What this means for you

Charities and churches that sell goods

Running a thrift shop, gift shop, or similar retail operation means you must register, collect, and remit Kansas sales tax on those sales — regardless of your exempt status or how you use the proceeds. Donated inventory sold at a nominal price is still a taxable retail sale.

Building or expanding a facility

Your construction materials can be exempt, but pick the right path. If you buy the materials directly, use ST-28O. If a contractor furnishes and installs materials, you must obtain a project exemption certificate from the Department in advance by filing form PR-76 — the contractor then buys the project materials tax-free. Getting the certificate before the work starts is what makes the contractor's purchases exempt.

Keep the two sides separate

Being exempt on your purchases (for exempt use) does not relieve you of collecting tax on your retail sales. They are governed by different rules; handle each correctly.

Common questions

Q: Does our religious organization have to collect sales tax on thrift-shop sales?
A: Yes. A religious organization that makes retail sales must register for, collect, and remit Kansas retailers' sales tax on those sales.

Q: Are the materials to build our addition taxable?
A: They can be purchased exempt if you follow the correct procedure. Direct purchases by the organization are exempt with certificate ST-28O.

Q: What if a contractor buys and installs the materials?
A: Then you must apply for a project exemption certificate from the Department using form PR-76. Once issued, it lets the contractor buy the project materials without paying sales tax.

Q: Does this ruling apply to my organization?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it reflects the Department's standard treatment of religious-organization retail sales and project exemptions.

Citations and references

• ST-28O — the exemption certificate a religious organization uses for its direct purchases of materials.
• PR-76 — the application a religious organization files to obtain a project exemption certificate, which allows a contractor to purchase project materials without paying sales tax.
• The Department's answer that a religious organization making retail sales must register, collect, and remit tax reflects the general Kansas retailers' sales tax duty on retail sellers.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-079

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 24, 2002

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Dear Sirs:

The purpose of this letter is to respond to your letter dated August 20, 2002.

The letter states:

We are writing to request a private letter ruling regarding to the following scenario. We are a 501(c)(3) organization organized as a religious organization. Our only members are the local churches with their ministers serving as our directors and officers. Upon dissolution our assets can only be distributed equally to the churches qualifying under the IRS code of 1954 who have participated in our organization. No part of our earnings may inure to our directors, officers or other private person.

Our community is small, therefore most of church congregations are small. The organization was formed by all the churches to help finance community services ordinarily provided by the individual churches. This helps eliminate duplication of costs and services. We have community prayer breakfasts, special joint holiday church services, provide assistance to the needy, etc. Our specific daily services are as follows:

1. Senior citizen transportation: A van provides seniors a ride to the doctor, grocery store, etc. these are provided at no cost to the rider. Donations are accepted. The drivers are all volunteers.

2. Meals on wheels: The van is also used to transport meals to seniors provided by a local kitchen that is federally funded. We receive no compensation for delivering these meals. The drivers are all volunteers.

3. Thrift shop and pantry: This is open on a daily basis. All clothes and household goods in the thrift shop are donated by church members. The needy of the community come here and receive clothes and household items at no charge or at a very low cost. The typical pricing is 10 cents to 25 cents for shirts, shoes, sweaters, etc. Good jeans and dresses are 50 cents. Some people want to pay a little due to personal pride. The pantry also provides food staples to families on an as needed basis. The food is all at no charge. The families must obtain a voucher from one of the local churches before they may receive assistance. The fees collected help offset the utilities and insurance on the building that houses the pantry and thrift shop. All labor to run the operation is donated.

4. Hearts and hammers: Community volunteers come together twice a year to do maintenance projects on the homes of the needy and senior citizens who are physically unable to help themselves. The materials are funded by donations. The churches provide names/projects which are considered needy.

5. The ministerial alliance provides emergency shelter, food, etc. to the indigent. This is also done on a voucher basis.

The alliance helps the churches overcome the burden of people who try to take advantage of the system. In the past, people would make a request at one church. Once approved and they used up all the resources at that church they would move along to the next church. The local churches needed a way to ensure the only people being helped were the needy. Under the alliance, there is no duplication of services between churches and the system is used for the better good. It can not be taken advantage of as easy.

The items in question which we need a ruling on are as follows:

a. Should the ministerial alliance be charging sales tax on the items being sold from the thrift shop?

Answer: Yes, religious organization that engage in a retail sale are required to register, collect and remit Kansas retailers’ sales tax.

b. We are currently needing to construct an addition to our thrift shop building. Are we liable to pay sales tax on the materials needed to construct this addition? This addition will also allow more room for the food pantry which is strictly on a no charge basis.

Answer: Purchases of materials for this project are exempt if certain procedures are followed.

Any direct purchases of materials from a retailer of materials made by your organization are exempt (issue exemption certificate ST-28O, enclosed).

If you hire a contractor that is to furnish and install materials, your organization must apply and be issued a project exemption certificate by the Kansas Department of Revenue. Your organization must apply to Kansas Department of Revenue by submitting form PR-76 (enclosed). When the Department approves this request, we will issue to you a project exemption certificate. This project exemption certificate allows the contractor to make purchases without the payment sales tax for materials incorporated in this project.

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: 10/03/2002 Date Modified: 10/04/2002

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