Can a church-operated thrift shop stop collecting Kansas sales tax because all of its sales proceeds are donated to charity?

Plain-English summary

A constituent wrote the Kansas Attorney General about a church that operates a thrift shop. The shop already collects sales tax on everything it sells, and all of the proceeds go to local charities (a rescue mission, a spiritual-life center at a penitentiary, and a prison ministry). The question, referred to the Department of Revenue: can the thrift shop stop charging and remitting sales tax because it donates all of the money to charity? The Department's answer: no — it must keep collecting and remitting the applicable state and local sales tax on its retail sales.

Why. The controlling rule is K.A.R. 92-19-67(a): every not-for-profit corporation, business, organization, or association regularly engaged in the business of selling tangible personal property at retail (or furnishing services or entertainment to the consumer, not for resale) is a retailer under K.S.A. 79-3602(d), and each retailer must collect and remit sales tax on the total gross receipts from its taxable retail sales.

The Kansas sales tax act generally requires sellers to collect sales tax regardless of who the seller is. The definition of "person" in K.S.A. 79-3602(a) reaches "any individual, firm, copartnership, joint adventure, association, corporation, estate or trust … or any group or combination acting as a unit," and specifically includes cities and other political subdivisions when they make taxable sales. The Department noted that even Kansas cities and counties must collect sales tax on taxable sales (snack bars, vending machines, utilities, employee sales), tracing this back to a policy — rooted in the 1930s–1940s — of not favoring municipally-owned utilities over privately-owned ones.

While the basic principle that all retail sales are taxable has been "compromised by a number of recent special interest exemptions," the Department said it continues to apply to religious organizations. So the church thrift shop must continue to charge, collect, and remit sales tax on its retail sales.

What this means for you

Churches and nonprofits running a store or thrift shop

Selling donated or purchased goods at retail makes you a retailer. You must register, collect, and remit Kansas state and local sales tax on those sales — even if 100% of the profit goes to charity. Where the money ends up does not exempt the sale.

Distinguish "buying exempt" from "selling exempt"

A religious organization may qualify to make certain purchases exempt, but that is a separate question from whether it must collect tax when it sells at retail. This ruling addresses the selling side: retail sales are taxable.

Everyone who sells at retail is covered

The Act's definition of "person" is broad enough to include nonprofits, associations, and even cities and counties. If you regularly sell taxable goods to consumers, plan to collect the tax.

Common questions

Q: All the thrift shop's profits go to charity. Can it stop collecting sales tax?
A: No. The Department ruled the shop must continue to collect and remit state and local sales tax on its retail sales; donating the proceeds does not exempt the sales.

Q: What makes a church thrift shop a "retailer"?
A: K.A.R. 92-19-67(a) — a not-for-profit regularly engaged in selling tangible personal property at retail is a retailer under K.S.A. 79-3602(d) and must collect and remit tax on its gross receipts.

Q: Does the sales tax apply to nonprofits and even governments?
A: Yes for their taxable retail sales. The definition of "person" in K.S.A. 79-3602(a) is broad and specifically includes cities and other political subdivisions making taxable sales.

Q: Isn't there an exemption for religious organizations?
A: The Department noted the general rule that retail sales are taxable continues to apply to religious organizations; any purchase-side exemption is a separate matter from the duty to collect tax on sales.

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 general treatment of nonprofit retail sales.

Citations and references

• K.A.R. 92-19-67(a) — a not-for-profit regularly engaged in retail selling is a retailer that must collect and remit sales tax on its gross receipts.
• K.S.A. 79-3602(d) — defines "retailer" (referenced by the regulation).
• K.S.A. 79-3602(a) — broadly defines "person," including cities and other political subdivisions making taxable sales.
• 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-2003-010

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

February 18, 2003

XXXX
XXXX
XXXX

RE: Your letter dated January 17, 2003

Dear XXXX:

I have been asked to answer your letter addressed to Attorney General Phil Kline. Your letter raises questions about sales tax law, which is administered by the Kansas Department of Revenue. The Kansas Attorney General's office often asks the department to answer constituent letters about tax laws, which fall within Revenue's particular area of administrative expertise.

In your letter, you state that the XXXX Church operates a thrift shop called the "XXXX Shop." The shop collects sales tax on everything that it sells. All of the proceeds from the sales are distributed to local charities, such as the XXXX Rescue Mission, the Spiritual Life Center at the XXXX penitentiary, and XXX's prison ministry. You ask if the XXXX Shop can stop charging and remitting sales tax because all of the proceeds are donated to charities. The answer is that it cannot. The XXXX Shop must continue to collect and remit the applicable state and local sale tax on its retail sales.

The controlling rule is found in K.A.R. 92-19-67(a):

Each not-for-profit corporation, business, organization or association regularly engaged in the business of selling tangible personal property at retail or furnishing services or entertainment to the ultimate user or consumer, and not for resale, shall be a retailer as defined in K.S.A. 1986 Supp. 79-3602(d). Each retailer shall collect and remit sales tax on the total gross receipts received from all taxable retail sales of tangible personal property, services or entertainment.

The Kansas sales tax act generally requires sellers to collect sales tax on their retail sales, regardless of who the seller is. This is shown in the definition of "person" found in K.S.A. 79-3602(a):

"Persons" means any individual, firm, copartnership, joint adventure, association, corporation, estate or trust, receiver or trustee, or any group or combination acting as a unit, and the plural as well as the singular number; and shall specifically mean any city or other political subdivision of the state of Kansas engaging in a business or providing a service specifically taxable under the provisions of this act.

This provision makes it clear that Kansas cities and counties must collect sales tax when they make taxable sales. These sales include sales made at snack bars, vending machine sales, utility sales, and employee sales. These transactions are specifically taxable because the Kansas legislature did not want to favor municipally-owned utilities over other utilities owned by stockholders. Favoring publicly-owned utilities over privately-owned utilities could have been perceived as socialistic in the 1930's and 1940's.

While this basic theory that sales tax must be collected on all retail sales has been compromised by a number of recent special interest exemptions, it continues to apply to religious organizations. Accordingly, the XXXX Shop is required to continue to charge, collect, and remit sales tax on its retail sales.

I hope that I have answered all of your questions. If you need to discuss this matter, please call me at 785-296-3081. This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

cc: Shiela Meneses, Attorney General's Office

Date Composed: 03/05/2003 Date Modified: 03/05/2003

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