Does a church-affiliated health-care foundation qualify for the Kansas religious-organization sales-tax exemption?

Plain-English summary

A church-affiliated fund — organized to support the health-care mission and ministry of a religious annual conference — asked whether it qualifies for exemption from Kansas sales tax as a religious organization. The fund is a 501(c)(3) entity whose articles describe advancing the "religious, charitable, scientific and educational ministries" of the conference.

The Department looked to K.S.A. 79-3606(aaa), which exempts sales of tangible personal property and services purchased by a religious organization that is 501(c)(3) exempt and used exclusively for religious purposes. That exemption has two requirements, both defined in the Department's Notice 99-14:

1. The buyer must be a "religious organization" — a group that gathers in common membership for worship at an established place of worship where it holds regularly scheduled religious services.
2. The purchases must be "used exclusively for religious purposes" — for example, to facilitate worship services, carry out the religious work of the organization, or construct and maintain a facility used exclusively for religious objectives.

After review at several levels within the Department, the conclusion was that the fund is not a religious organization within K.S.A. 79-3606(aaa), and that its purchases would not be used exclusively for a religious purpose. Failing either requirement is enough to deny the exemption, so the fund does not qualify and must pay Kansas sales tax.

What this means for you

Church foundations, funds, and affiliated ministries

Being connected to a church, or being a 501(c)(3) with a religious mission statement, does not by itself earn the Kansas religious-organization exemption. A supporting fund or foundation that is not itself a worshipping congregation, and whose spending is broader than exclusively religious use, will generally fall outside K.S.A. 79-3606(aaa).

Nonprofits weighing this exemption

Remember it is a two-part test — who is buying (a religious organization) and how the purchases are used (exclusively for religious purposes). Missing either part defeats the exemption.

Advisers to religious nonprofits

When structuring or advising a church-affiliated entity, recognize that the exemption is narrow. Document worship activity and exclusively-religious use if the exemption is being claimed, and budget for sales tax where those facts are not present.

Common questions

Q: We're affiliated with a church — doesn't that make us a religious organization?
A: Not necessarily. Kansas requires the buyer to be a worshipping congregation at an established place of worship (Notice 99-14). A supporting fund or foundation that does not itself function that way will not qualify.

Q: What is the "used exclusively for religious purposes" requirement?
A: The purchases must be used exclusively to facilitate worship, carry out the organization's religious work, or build and maintain facilities used exclusively for religious objectives. Mixed or broader charitable use does not meet it.

Q: Does our 501(c)(3) status help?
A: The exemption does require 501(c)(3) status, but that alone is not enough — you must also be a religious organization and use the purchases exclusively for religious purposes.

Q: Does this ruling apply to us?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, though it shows how the Department applies the two-part religious-organization exemption.

Citations and references

• K.S.A. 79-3606(aaa) — exempts sales purchased by a religious organization that is 501(c)(3) exempt and used exclusively for religious purposes. The Department found the fund met neither the "religious organization" nor the "used exclusively for religious purposes" requirement.
• K.S.A. 79-3606 — the broader Kansas sales-tax exemption statute under which the request was analyzed.
• Notice 99-14 — the Department's notice defining "religious organization" and "used exclusively for religious purposes" for Kansas retailers' sales tax.
• 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-2003-058

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

December 11, 2003

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Re: Kansas Sales Tax

Dear XXXXX:

Your correspondence of July 1, 2003 has been referred to me for response. Thank you for your inquiry, and please accept my apologies for the inordinately long delay in responding.

Your letter notes the XXXXX XXXX XXXX XXXX XXXX is exempt from federal income taxation pursuant to section 501(c)(3) of the federal internal revenue code. The purpose of the fund is to:

. . . support and advance the religious, charitable, scientific and educational ministries of the XXXX XXXX XXXX XXXX of the XXXX XXXXX XXXX, or any successor annual conference thereto, in furtherance of the health care mission and ministry of said annual conference . . .

Your letter goes on to note that during the normal course of business, the XXXX pays sales tax on various services, supplies and equipment.

Following your letter of July 1st you provided additional information, both by phone and by letter of September 17th, in order to further explain your position. This information was very helpful and much appreciated.

The question you present is whether the XXXX qualifies for exemption from Kansas sales tax pursuant to K.S.A. 79-3606.

The exemption for religious organizations is found in K.S.A. 79-3603(aaa). The statute provides, in pertinent part, for the exemption from sales tax of:

(aaa) 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,

The term "religious organization" is not defined in the statute. Department of Revenue has, however, defined the term in Notice 99-14, a copy of which is enclosed for your convenience. In Part I the Notice provides that:

(a) For purposes of the Kansas retailers' sales tax act, "religious organization" shall mean any organization, church, body of communicants, or other groups 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.

The Notice goes on to establish qualifications for "an organization that are composed of religious organizations", and "certain auxiliary organizations".

The phrase "used exclusively for religious purposes" is also defined in the Notice. Part II provides that tangible personal property and services are used exclusively for religious purposes if they are:

· Used exclusively in, or to facilitate, religious worship services by a congregation or church membership while meeting together at a single location;
· 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 . . . .
· Used exclusively to administer, manage, or operate religious facilities or to administer religious activities.

Article IV of the Articles of Incorporation you submitted states, in part, that the objects and purposes of the corporation are:

1) To support and advance the religious, charitable, scientific and educational ministries of XXXX XXXX XXXX XXXX XXXX of the XXXX XXXXX XXXX, or any successor annual conference thereto, in furtherance of the health care mission and ministry of said annual conference . . . .

2) The XXXX XXXX XXXX XXXX XXXX exists to further the health care mission and ministry of the XXXX XXXX XXXX XXXX of the XXXX XXXXX XXXX. As an expression of the Body of Christ, the XXXX XXXX XXXX XXXX XXXX will provide resources for educational, experimental, administrative and direct services to the end that health, healing and wholeness be advanced for persons within and beyond the bounds of the XXXX XXXX XXXX XXXX, or any successor annual conference.

As you know, your request was reviewed at several levels within the Department of Revenue. After carefully considering the information you presented, we have determined the XXXX XXXX XXXX XXXX XXXX is not a religious organization as contemplated by K.S.A. 79-3606(aaa), and that its purchases will not be used exclusively for a religious purpose. Therefore, the XXXX XXXX XXXX XXXX XXXX will not qualify for exemption from sales tax under K.S.A. 79-3606(aaa).

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.

I trust this information is of assistance. If I can be of further service, please feel free to contact me.

Sincerely,

Jim Weisgerber
Attorney
Tax Specialist

JW:jw

Enclosure: Notice 99-14

Date Composed: 12/12/2003 Date Modified: 12/12/2003

Table 1

Table 2