Does the organization qualify as an exempt religious organization under the Kansas Retailers' Sales Tax Act, and what purchases are exempt?

Plain-English summary

Based on the facts and documents submitted, the Department determined the organization is a religious organization for purposes of the Kansas Retailers' Sales Tax Act. Kansas 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) … and used exclusively for religious purposes" (K.S.A. 79-3606(aaa)). (This determination is a companion to ruling P-2002-084, which applies the identical analysis to another applicant.)

What "religious organization" means. Citing Notice 98-05 (and K.S.A. 79-4701(e), K.S.A. 8-1730a), the term means any organization, church, body of communicants, or group that gathers in common membership for mutual support and edification, in piety, worship, and religious observance, at an established place of worship it maintains for regularly scheduled religious services or meetings, and none of whose net earnings inure to a private shareholder or member. An organization composed of religious organizations can derive the exemption only if all its members are themselves exempt religious organizations and it operates exclusively to help them carry out their religious purpose (and it must itself be 501(c)(3) exempt) — citing Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970). Charitable organizations composed of churches, businesses, and lay persons do not qualify.

How to buy exempt. The organization's direct purchases used exclusively for religious purposes are exempt; to claim it, it gives the retailer a copy of this letter and an exemption certificate. The 1998 Legislature enacted the exemption; the 1999 Legislature expanded it to purchases by contractors who construct buildings or improve real property owned by a religious organization and used exclusively for religious purposes — but not the purchase of construction machinery, equipment, or tools — and directed a refund procedure for tax religious organizations paid indirectly through contractors on or after July 1, 1998 (see Notice 99-05).

What counts as "used exclusively for religious purposes" includes property/services used in or to facilitate religious ceremonies and the religious work of the organization, and used to construct, furnish, equip, remodel, or maintain a facility for religious objectives (church, church grounds, administration building, church camp, parsonage, rectory, convent) — purchased directly by the organization, not through a contractor (citing Kansas City Dist. Advisory Bd. v. Board of Johnson County Comm'rs, 5 Kan. App. 2d 538 (1980)) — and to administer/operate religious facilities and activities. "Used exclusively" tolerates other use that is minimal, insubstantial, and incidental (citing Midwest Presbytery v. Jefferson County Appraiser, 17 Kan. App. 2d 676 (1992)).

What is NOT exempt: property/services purchased for business activities — even if the profits fund religious purposes (Sunday School Bd. v. McCue, 179 Kan. 1 (1956)) — and items like food, clothing, personal items, meals, drinks, motor vehicles, admission charges, and membership dues that are for the personal use of ministers, priests, and other employees.

What this means for you

Recognized religious organizations

Your direct purchases of property and services used exclusively for religious purposes are exempt. Give vendors a copy of your determination letter and an exemption certificate. Buy directly — purchases routed through a contractor generally aren't exempt except under the specific 1999 contractor rule.

Building projects

Under the 1999 expansion, a contractor's purchases of materials/services to build or improve your religious-use real property can be exempt — but construction machinery, equipment, and tools are not. Tax paid indirectly through contractors since July 1, 1998 may be refundable (Notice 99-05).

Watch the non-exempt uses

Purchases for business/commercial activities (even to fund ministry) and personal-use items for clergy and staff are taxable. "Used exclusively" allows only minimal, incidental other use.

Common questions

Q: What makes our organization exempt?
A: The Department determined you are a religious organization under the Act, so direct purchases used exclusively for religious purposes are exempt under K.S.A. 79-3606(aaa).

Q: How do we make exempt purchases?
A: Provide the retailer a copy of this ruling and an exemption certificate, and buy directly for exclusively religious use.

Q: Are our building contractor's purchases exempt?
A: Under the 1999 expansion, a contractor's purchases to construct or improve your religious-use real property can be exempt — but not construction machinery, equipment, or tools. Tax paid indirectly through contractors since July 1, 1998 may be refundable.

Q: What purchases are not exempt?
A: Items for business activities (even if profits fund religion), and personal-use items for clergy/staff such as food, clothing, meals, motor vehicles, admissions, and membership dues.

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 religious-organization analysis. (A companion determination, P-2002-084, applies the same analysis to another applicant.)

Citations and references

• K.S.A. 79-3606(aaa) — exempts purchases by a 501(c)(3) religious organization used exclusively for religious purposes.
• Notice 98-05 — defines "religious organization" and the direct-purchase requirement; Notice 99-05 — the 1999 contractor expansion and refund procedure for tax paid indirectly through contractors since July 1, 1998 (construction machinery, equipment, and tools remain taxable).
• K.S.A. 79-4701(e); K.S.A. 8-1730a — referenced in the definition of religious organization.
• Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970) — derivative exemption for an organization composed exclusively of exempt religious organizations.
• Kansas City Dist. Advisory Bd. v. Board of Johnson County Comm'rs, 5 Kan. App. 2d 538 (1980); Midwest Presbytery v. Jefferson County Appraiser, 17 Kan. App. 2d 676 (1992); Sunday School Bd. v. McCue, 179 Kan. 1 (1956) — direct-purchase, "used exclusively," and business-activity limits.
• 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-2002-083

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

October 7, 2002

XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX

Dear Sirs:

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

Based solely on the facts of your letter and documents submitted, the Kansas Department of Revenue has determined that XXXXXXXXXXXXXXXXXXXX is a religious organization for purposes of the Kansas Retailers' Sales Tax Act.

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).

Therefore, direct purchases, that are used exclusively for religious purposes are exempt from Kansas retailers' sales tax. When making an exempt purchase you should provide to the retailer a copy of this letter and an exemption certificate. I have enclosed a copy of the exemption certificate, you may duplicate and issue as needed. The 1998 Kansas Legislature exempted sales of property and services to religious organizations, when such purchases are used exclusively for religious purposes. In 1999 legislature expanded this exemption to include sales of tangible property and services to contractors who use such purchases to construct buildings or make other improvements to real property owned by a religious organization and used exclusively for religious purposes. This does not exempt the purchase of any construction machinery, equipment or tools. In addition to enacting this exemption, the 1999 legislature directed the Department to implement refund procedures to refund the sales tax religious organizations paid indirectly through their contractors on or after July 1, 1998. See Notice 99-05, that I have enclosed

Tangible personal property and services that are considered to be used exclusively for religious purposes include, but are not limited to, personal property and services:

· used exclusively in, or to facilitate, religious ceremonies.

· used exclusively in, or to facilitate, carrying out the religious work of the organization.

· used to construct, furnish, equip, remodel, or maintain a facility used exclusively for religious objectives including, but not limited to, a church, church grounds, a church administration building, a church camp, a parsonage, rectory, or convent. Such property must be purchased directly by the religious organization and not through a contractor. See Kansas City Dist. Advisory Bd. v. Board of Johnson Country Comm'rs, 5 Kan App. 2d 538, 542 (1980).

· used exclusively to administer, manage, or operate religious facilities or to administer religious activities.

Tangible personal property and services will be considered to be "used exclusively" for a religious purpose as long as any other use of the item or service is minimal in scope, insubstantial in nature, and incidental to the exempt purpose. See Midwest Presbytery v. Jefferson County Appraiser, 17 Kan. App. 2d 676, 679 (1992).

Tangible personal property and services that are not exempt include: (1) personal property and services that are purchased by a religious organization for use in undertaking business activities, even though the profits from such enterprises may be used exclusively for religious purposes (See Sunday School Bd. v. McCue, 179 Kan. 1 (1956)); and (2) personal property and services, such as food, clothing, personal items, meals, drinks, motor vehicles, admission charges, and membership dues, that are for the personal use of ministers, priests, and other employees, rather than a use that is exclusively for a religious purpose.

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: 10/17/2002 Date Modified: 10/17/2002

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