Does an interfaith council of congregations and individual delegates qualify as a Kansas religious organization?

Plain-English summary

An interfaith council — a 501(c)(3) whose "membership consists of nearly 100 congregations, several religious organizations plus individual delegates from congregations," and which describes itself as "a derivative organization of religious congregations organized and operated exclusively to assist our membership congregations and the religious community carry out its religious purpose" — asked whether it qualifies as a Kansas "religious organization." It noted it maintains a reflection room "set aside for the sole purpose of prayer and meditation."

The exemption and definition. K.S.A. 79-3606(aaa) exempts sales to a 501(c)(3) "religious organization . . . used exclusively for religious purposes." Quoting Notice 98-05, the Department defined a "religious organization" as a group that gathers "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," with no earnings inuring to a private member.

The derivative all-members test. A group "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," and must itself be 501(c)(3) (citing Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970)). But groups that "are composed of churches, businesses, and lay persons . . . are not composed exclusively of churches or other religious organizations . . . [and] do not qualify."

The holding. "[Y]our organization does not meet the necessary criteria to be a religious organization exempt pursuant to K.S.A. 79-3606(aaa)."

Bottom line: an interfaith council whose members include not only congregations and religious organizations but also individual delegates is not composed exclusively of religious organizations, so it fails the derivative all-members test and does not qualify for the K.S.A. 79-3606(aaa) exemption — a reflection room for prayer does not substitute for the statutory requirements.

What this means for you

The all-members test is strict

To inherit the exemption as a group of religious organizations, every member must be an exempt religious organization. Adding individual delegates or lay members — even from member congregations — breaks the "composed exclusively of religious organizations" requirement.

Describe your structure accurately, then test it

Calling the group a "derivative organization" is not enough; the Department looks at the actual membership. If the roster includes individuals or non-religious entities, the derivative route to exemption is unavailable.

A prayer space is not an "established place of worship" for the test

Maintaining a reflection or meditation room does not by itself make an organization one that gathers for regularly scheduled religious services at an established place of worship. Meet the statutory definition, not just its spirit.

Common questions

Q: Does an interfaith council of congregations qualify as a Kansas religious organization?
A: Not where its membership also includes individual delegates. Such a body is not "composed exclusively of . . . religious organizations," so it "do[es] not qualify."

Q: We call ourselves a derivative organization — is that enough?
A: No. The derivative exemption requires that "all of its members are themselves exempt religious organizations" and that the group exist exclusively to further their religious purpose. Membership that includes individuals fails that test.

Q: Does having a prayer/meditation room help?
A: No. A reflection room does not satisfy the requirement that a religious organization gather for regularly scheduled religious services at an established place of worship it maintains.

Citations and references

• K.S.A. 79-3606(aaa) — exempts sales to a 501(c)(3) religious organization for property/services used exclusively for religious purposes; the exemption the council sought and was denied.
• Notice 98-05 — the Department's guidance defining "religious organization" and the all-members derivative test.
• Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970) — cited (via Notice 98-05) for when an organization composed of religious organizations may derive the exemption from its members.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-1999-147

Original ruling text

Private Letter Ruling

Body:

Office of Policy and Research

June 30, 1999

XXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXX

Dear XXXXXXXX:

I have been asked to respond to your letter dated December 17, 1998. In it, you ask if your organization qualifies as a religious organization for purposes of Kansas sales tax.

In your letter you stated:

XXXXXXXXXXXX is a non-profit 501(c)(3) that is not required to submit a 990 form because of our religious organization status. Our membership consists of nearly 100 congregations, several religious organizations plus individual delegates from congregations.

XXXXXXXXXX service the needs of the religious congregations which it represents. As stated in the opening of our by-laws ( a copy is included with this letter), XXXXXXXX brings people of faith together to:

n achieve knowledge, understanding and appreciation of all faiths
n educate and encourage dialogue
n worship
n cooperate in the promotion of justice, the relieving of misery and reconciling of

the estranged

n provide responses to the challenges of our times based upon spiritual principles
n transform society so that love, peace and unity may prevail

XXXXXXXXXXXX is, in other words, a derivative organization of religious congregations organized and operated exclusively to assist our membership congregations and the religious community carry out its religious purpose.

In addition to having a reflection room as a part of our XXXXXXXXXX which is set aside for the sole purpose of prayer and meditation, we also conduct a minimum of XXXXXXXXXX annually. As stated in our by-laws, the purpose of the XXXXXXXis: “to provide program and inspiration to the members”.

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

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).

It is the opinion of the Kansas Department of Revenue that your organization does not meet the necessary criteria to be a religious organization exempt pursuant to K.S.A. 79-3606(aaa).

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: 07/08/1999 Date Modified: 10/11/2001

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