Source: http://rvpolicy.kdor.ks.gov/Pilots/Ntrntpil/IPILv1x0.NSF/ae2ee39f7748055f8625655b004e9335/f74db6230dd946cd8625689600559056?OpenDocument
Timestamp: 2019-04-19 19:08:20+00:00

Document:
This notice discusses the department’s implementation of the 1998 and 1999 sales tax exemptions that the Kansas legislature granted to religious organizations. The notice updates Notice 98-05, which was rescinded because of the 1999 legislative changes, and incorporates Notice 99-05, which discusses the 1999 provisions for project exemptions and sales tax refunds.
The 1998 Kansas legislature enacted a new law to exempt certain direct purchases by religious organizations. As is discussed in Subsection III, the purchases must be used exclusively for religious purposes to qualify for exemption. The 1999 legislature broadened this law to provide a procedure to exempt the sale of materials to contractors for incorporation into a religious organization’s qualifying real property. The exemption of a contractor’s purchases for the benefit of an exempt entity is commonly referred to as a “project exemption,” “indirect exemption,” or “pass-though exemption.” In Kansas, this type of exemption is secured by having an exempt entity apply to the department of revenue for a project exemption certificate. Once a project exemption certificate is obtained, the entity should provide copies to their contractors and subcontractors on the project to exempt their services and for the contractors and subcontractors to use to claim exemption on their purchases of materials and supplies for the project.
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 and all sales of tangible personal property or services purchased by a contractor for the purpose of constructing, equipping, reconstructing, maintaining, repairing, enlarging, furnishing or remodeling facilities for any such organization which would be exempt from taxation under the provisions of this section if purchased directly by such organization. . . When any such organization shall contract for the purpose of constructing, equipping, reconstructing, maintaining, repairing, enlarging, furnishing or remodeling facilities, it shall obtain from the state and furnish to the contractor an exemption certificate for the project involved, and the contractor may purchase materials for incorporation in such project. . . . (1999 Sess Law. Ch. 154, Sec. 6; This subsection is set forth in its entirety in the Appendix).
In addition to project exemptions, the 1999 legislature granted religious organizations the right to obtain a refund of any sales tax that their contractors may have paid on qualifying materials and supplies sold on or after July 1, 1998. Refunds are discussed in Subsection V of this notice.
Implementation of the two new laws requires a number of questions to be answered. These are: (1) What is a religious organization? (2) What qualifies as a direct purchase by a religious organization? (3) What constitutes exclusive use for religious purposes? (4) What steps must a religious organization take in order to claim exemption on direct purchases? (5) What steps must a religious organization take in order to secure a project exemption certificate or a refund of taxes paid? and (6) What sales to and sales made by a religious organization remain subject to sales and use tax? These questions will be discussed in order.
I. What is an Exempt Religious Organization?
a)	For purposes of the Kansas retailers’ sales tax act, “religious organization” shall mean 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. See K.S.A. 79-4701(e); K.S.A. 8-1730a.
b)	In order to qualify for exemption from sales tax, a religious organization must qualify for exemption from federal income tax under I.R.C. §501(c)(3).
d)	An affiliated organization and affiliated corporation made up of church leaders, church supporters, and other lay persons, although operating in support of, or under the guidance of, an exempt religious organization, may not claim exemption as a religious organization.
e)	Certain auxiliary organizations may qualify as religious organizations under I.R.C. §501(c)(3). I.R.C. §501(c)(3) lists the organizations that are considered “religious organizations” as: “Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men’s or women’s organization, religious school, mission society, or youth group.” IRS Publication 557. Purchases by qualifying integrated church auxiliary are exempt when the purchases are used exclusively for religious purposes.
f)	Any organization may request an administrative letter ruling to determine whether or not it qualifies as a religious organization under K.S.A. 79-3606(aaa). Each request shall be accompanied by: (1) a copy of the by-laws and other documentation that establishes that it is organized and operated for religious purposes; and (2) if one has been issued, a copy of letter from the Internal Revenue Service (IRS) that recognizes the organization is exempt from federal income taxation pursuant to I.R.C. §501(c)(3). Under IRS rules, churches are exempt if they meet the various 501(c)(3) requirements. Churches may, but are not required to, secure a 501(c)(3) letter. See IRS Publication 557, Ch. 3, p. 14. Under Kansas law, the burden of proof that an organization is exempt lies with the organization. Any organization that erroneously claims exemption as a religious organization must be held liable for tax, penalty and interest if it is later determined that the organization does not qualify under K.S.A. 79-3606(aaa) and the organization has claimed exemption on its purchases.
II. What Qualifies as a Direct Purchase Made by a Religious Organization?
Exemption certificates issued by a nonprofit entity claiming a specific exemption under K.S.A. 79-3606, and amendments thereto, shall bear the name and address of the entity and indicate the subsection under which the exemption is being claimed. Such certificate shall be signed by an officer, office manager or other administrator of the nonprofit entity and contain the driver's license number of the signer. The certificate shall be substantially in such form as the director may prescribe. Payments made on an exempt entity's check, warrant, voucher or is charged to the entity's account shall relieve the vendor from collecting and remitting the tax if it is taken in good faith.
b)	The department's Form BT/st-28R, "Religious Organization Exemption Certificate," meets the requirements of K.S.A. 79-3651(f). This and other exemption certificates are available from our offices or web site.
c)	As noted above, auxiliary entities such as a men’s or women’s organizations, religious schools mission societies, or youth groups, may qualify as religious organizations. See IRS Publication 557. Payment by these auxiliary groups drawn on a church managed checking account is sufficient to indicate that the organization qualifies as an “interchurch organization” or “integrated auxiliary” whose purchases are exempt when the purchases are used exclusively for a religious purpose.
d)	Purchases by employees of a religious organization should be taxed unless the purchases are paid for with a religious organization's check, warrant, or voucher, are charged to the organization's account, or a cash payment is accompanied by an exemption certificate. Purchases paid for with funds from a member or with funds from a group of members are not exempt from tax. These rules apply even when the employee or member is reimbursed for the purchase by the religious organization.
e)	This exemption does not extend to a person who purchases property to be given or donated to a religious organization. For an item to be purchased exempt, the person must donate the funds to the organization, and the organization must purchase the item in accordance with K.S.A. 79-3651(f). A retailer donating an item from resale inventory is required to accrue tax on the cost of the item being donated.
III. What Constitutes Exclusive use for Religious Purposes?
·	used exclusively to administer, manage, or operate religious facilities or to administer religious activities.
b)	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).
c)	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 exclusively for a religious purpose.
e)	Nursing home operations typically care for and house the sick and the elderly. Purchases by church-owned nursing homes used for nursing home operations do not constitute purchases that are made exclusively for religious purposes. However, many of the purchases made by non-profit nursing homes may be exempt under other provisions. See e.g. K.S.A. 79-3606(hh); K.S.A. 79-3606(w); K.S.A. 79-3603(p)(4).
IV. What Steps Must a Religious Organization Take in Order to Claim Exemption on Direct Purchases?
a)	Unlike a number of other states, Kansas does not require a religious organization to either register with or secure a special exemption letter from the department of revenue in order to claim exemption on its purchases.
b)	To claim exemption on its purchases, a religious organization must provide its vendors with an exemption certificate that is completed in accordance with K.S.A. 79-3651(f), set forth above. Religious organizations may use the certificate designed for them by the department, Form BT/st-28R, "Religious Organization Exemption Certificate." Exemption certificate forms are available from the department of revenue or may be reproduced from K.A.R. 92-19-25b, which is available at the department’s internet address. Vendors are required to maintain exemption certificates as part of their records, and may honor a single, blanket exemption certificate that is part of their records when a religious organization makes ongoing purchases from them that are all exempt.
V. What Steps Must a Religious Organization Take in Order to Secure a Project Exemption Certificate or a Refund of Taxes Paid?
7) Project exemption certificates should be maintained for five (5) years. Unlike political subdivisions, religious organizations may not apply for authority to issue their own project exemption certificates.
b)	Refunds for purchases delivered and service performed between July 1, 1998 and May 27, 1999 -- To claim refunds for purchases delivered or services performed on or after July 1, 1998, and before May 27, 1999, religious organizations must contact their contractors and subcontractors and jointly complete refund forms provided by the department of revenue. (Joint Application for Refund under 1999 Senate Bill 45 (ST-60 (5/99)). The form must be completed and signed by both the contractor and the religious organization. This requires providing a description of the project, the dates the project was performed, and supplying copies of the vendor invoices showing the amount of Kansas sales tax paid by the contractor paid to the vendor. Contractor/retailers who accrued tax on a project must provide a statement or other documentation showing the amount of tax accrued and the reporting period during which it was accrued. To qualify for a refund, the sale must have been made on or after July 1, 1998. Retail sales are considered to be made when the seller delivers an item to the buyer or when the services are performed. Therefore, the documentation provided must reasonably establish delivery or contract performance occurred on or after July 1, 1998.
The 1999 Kansas Legislature enacted this refund provision to benefit religious organizations whose building costs were affected because their contractors could not claim an exemption when buying building materials and supplies. Application for refunds must be jointly signed by the religious organization and by the contractor who paid the tax or by the contractor/retailer who accrued it. Refund checks issued by the department of revenue will be made payable to the religious organization.
c)	Refunds for purchases delivered and service performed after May 27, 1999 -- To claim refunds for purchases delivered or services performed after May 27, 1999, religious organizations should follow the refund procedure described in K.A.R. 92-19-66e.
VI. What Sales to and Sales Made by a Religious Organization Remain Subject to Kansas Sales and Use Tax?
K.S.A. 79-3606(aaa) only exempts purchases made by religious organizations. It does not exempt sales that such organizations make to others, including sales they make to members and employees. See State Tax Comm. v. Board of Agriculture, 146 Kan. 720 (1937). This means that, unless a religious organization qualifies as making an isolated or occasional sale as defined in K.S.A. 79-3602(j), it must register as a retailer and collect and remit sales tax on its retail sales. Retail sales include sales made at promotional booths, book sales, and other sales to final consumers. As with any other registered retailer, religious organizations may claim resale exemption when they purchase items to sell at retail.
This Notice supersedes and revokes Notice 98-05 and Notice 99-05.
To obtain additional copies of this or any other notice call the Kansas Department of Revenue’s voice mail forms request line at (785) 296-4937 or download them from our web site: www.ink. org/public/kdor. If you have any questions about this notice, please contact a customer service representative in one of our Taxpayer Assistance Centers.

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