Are a church's sales of below-cost food through a grocery relief program exempt from Kansas sales tax?

Plain-English summary

A church signed on as a host site for a community-wide grocery relief program run by an out-of-state sponsor, and asked what sales tax duties it had.

The relevant exemption is K.S.A. 79-3606(bbb), which exempts food sold by a 501(c)(3) organization through a food distribution program that offers the food below cost in exchange for the performance of community service by the purchaser. The Department reviewed the program's materials and website: the sponsor appeared to be a 501(c)(3), and the food was priced below cost — but nothing required recipients to perform community service in exchange for the food.

Because the exemption applies only if the recipient must perform community service as a quid pro quo for the right to buy the food, and that requirement was missing, the exemption did not apply. With no other exemption available, the church's food sales are taxable, and the church must collect and remit tax on the selling price.

What this means for you

Churches and nonprofits hosting food-relief or discount-grocery programs

Selling food below cost is not enough to be exempt. The K.S.A. 79-3606(bbb) exemption requires that buyers perform community service in exchange for the food. If your program has no community-service requirement, your food sales are taxable and you must collect and remit sales tax.

Program sponsors

Being a 501(c)(3) and pricing food below cost does not by itself exempt the sales at host sites. The community-service condition is essential to the exemption.

Common questions

Q: Is below-cost food sold by a church exempt from Kansas sales tax?
A: Only if the program requires recipients to perform community service in exchange for the food, under K.S.A. 79-3606(bbb). Without that requirement, the sales are taxable.

Q: The sponsor is a 501(c)(3) and the food is below cost — isn't that enough?
A: No. The exemption also requires that the buyer perform community service as a condition of buying the food.

Citations and references

• K.S.A. 2005 Supp. 79-3606(bbb) — exempts sales of food by a 501(c)(3) organization through a food distribution program that offers the food below cost "in exchange for the performance of community service by the purchaser"; the Department found the community-service requirement absent, so the sales were taxable.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2007-002

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

March 6, 2007

XXXX
XXXX
XXXX

RE: Your letter dated February 27, 2007

Dear XXXX:

Thank you for your recent letter. You work for a church that has contracted as a host site for a community-wide grocery relief program sponsored by XXXX of Los Vegas, Nevada. You ask what sales tax duties are imposed on your church because of its involvement in the program.

K.S.A. 2005 Supp. 79-3606(bbb) contains the relevant exemption. It exempts:

(bbb) all sales of food for human consumption by an organization which is exempt from federal income taxation pursuant to section 501 (c)(3) of the federal internal revenue code of 1986, pursuant to a food distribution program which offers such food at a price below cost in exchange for the performance of community service by the purchaser thereof . . . . (Emphasis provided).

I have reviewed the material that you provided about the XXXX. I have also visited their web site. The web site indicates that the XXXX is a 501(c)(3) organization. Both the website and material suggest that the price of the food charged to recipients is below the cost of the food. However, nothing at the website or in the material states that the recipients are required to perform community service.

Under K.S.A. 2005 Supp. 79-3606(bbb), the sale of food is exempt only if the food recipient is required to perform community service as a quid pro quo for the right to buy the food. There are no other exemptions that would apply to these food sales. Therefore, your church's sales of the XXXX food are taxable. Your church must collect and remit the correct amount of tax on the selling price being charged for the food.

This is a private letter ruling pursuant to Kansas Administrative Regulation 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 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 ruling.

Please call me if you need to discuss anything further.

Sincerely,

Thomas E. Hatten
Attorney/Policy & Research

Date Composed: 03/16/2007 Date Modified: 03/16/2007

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