Does a community federation or umbrella organization qualify as a tax-exempt 'religious organization' under the Kansas sales tax act?

Plain-English summary

A community federation / umbrella organization asked whether it is a "religious organization" for Kansas sales tax purposes — which would exempt its purchases. The Department said it is not, and the federation must continue to pay sales tax on its purchases.

Under the Kansas retailers' sales tax act, a "religious organization" is a group that gathers in common membership for mutual support and edification, in piety, worship, and religious observance, at an established place of worship it maintains for regularly scheduled religious services or meetings, and whose net earnings don't benefit any private shareholder or member (K.S.A. 79-4701(e); K.S.A. 8-1730a; Notice 99-14).

Kansas enacted the current religious-organization exemption in 1998 and broadened it in 1999 to include construction projects; the Department implemented it through Notice 99-14. That Notice draws a line:

• An organization composed of religious organizations can derive the exemption from its members only if all its members are themselves exempt religious organizations, it operates exclusively to help those members carry out their religious purpose, and it is itself exempt under I.R.C. §501(c)(3) (citing Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970)).
• An affiliated organization made up of church leaders, supporters, and other lay persons — even one operating in support of, or under the guidance of, an exempt religious organization — may not claim the exemption.

Looking at the federation's own materials, the Department found it was run largely by lay people, its activities (fundraising for camp, education, refugee resettlement, a film series, cultural experiences) did not describe a group worshipping at an established place of worship, and it was not made up exclusively of — or operated solely to benefit — synagogues, mosques, and churches. It was an affiliated organization acting in support of a religion, which the exemption does not embrace. The Department also warned that any similar Kansas organization claiming this exemption as a "religious organization" likely violates the law and may face fines and penalties.

What this means for you

Federations, foundations, and umbrella groups tied to a faith

Supporting a religion or a religious community is not enough to be an exempt "religious organization." The exemption is built around an actual place of worship with regularly scheduled services, or a true hierarchy of such congregations. A lay-led affiliate that fundraises and provides social, educational, or cultural services doesn't qualify — even if its mission is faith-connected.

Groups made up of congregations

If your organization is composed of religious organizations and wants to derive the exemption, every member must itself be an exempt religious organization, you must operate exclusively to help them carry out their religious purpose, and you must hold your own 501(c)(3) status.

Claiming the exemption incorrectly

The Department flagged that organizations wrongly claiming religious-organization exemption may be subject to fines and penalties — so verify eligibility before using an exemption certificate.

Common questions

Q: We're a faith-based community federation. Are our purchases exempt as a religious organization?
A: No. If you're not a place of worship (or a hierarchy made up exclusively of exempt congregations), you don't qualify and must pay sales tax on purchases.

Q: We support and are guided by exempt churches — doesn't that make us exempt too?
A: No. An affiliated organization of church leaders, supporters, and lay persons that acts in support of a religion may not claim the exemption.

Q: When can an organization made up of religious organizations qualify?
A: Only if all members are exempt religious organizations, it operates exclusively to assist their religious purpose, and it is itself exempt under I.R.C. §501(c)(3).

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 shows how the Department defines "religious organization."

Citations and references

• K.S.A. 79-4701(e) — supplies the Kansas definition of "religious organization" (a group gathering for worship at an established place of worship it maintains for regularly scheduled services, with no private inurement) that the Department applied.
• K.S.A. 8-1730a — cited alongside the definition of "religious organization."
• Notice 99-14 — the Department's guidance implementing the 1998/1999 religious-organization exemption; its Subsections I(c) and I(d) draw the line between qualifying hierarchies (which must be 501(c)(3)) and non-qualifying affiliated organizations.
• Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970) — cited in Notice 99-14's requirement that a qualifying umbrella organization be exempt under I.R.C. §501(c)(3).
• 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-2003-033

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

May 29, 2003

XXXX
XXXX
XXXX

RE: Your letter postmarked April 21. 2003

Dear XXXX:

Thank you for providing the descriptive material about your organization, XXXX. You ask if your organization is a "religious organization" as the term is use in the Kansas sales tax act. Please be advised that it is not. The federation must continue to pay sales tax on its purchases.

For purposes of the Kansas retailers' sales tax act, "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. See K.S.A. 79-4701(e); K.S.A. 8-1730a; Notice 99-14.

The Kansas legislature enacted the current exemption for religious organizations in 1998, and broadened it to include construction projects in 1999. The department issued Notice 99-14 to implement the exemptions. I have enclosed a copy of the Notice for you to review. Subsection I(c) and I(d) explain that certain organizations are exempt, while others are not:

c) An organization that is composed of religious organizations may derive exemption from its members if all of the 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). See Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847 (1970).
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. Notice 99-14.

The annual report that you provided contain the organization's mission statement:

To strengthen and unify the XXXX, the XXXX function as an umbrella organization to provide for the education, cultural, social, and financial needs of our community, XXXX, and the XXXX. Fund raising and allocation serve as integral parts of the XXXX activities in accomplishing these goals.

While the XXXX lists XXXX and XXXX as Ex-Official members, the officers and the board of directors appear to lay people. The XXXXs activities discussed in the annual report do not describe a "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. . . ." The XXXX's activities include fundraising to send children to camp XXXX, for adult and youth education, for refugee resettlement, for a film series, and to "provide XXXX cultural experiences."

More importantly, the XXXX is not made up exclusively of synagogues, mosques, and churches or operated solely to benefit the synagogues, mosques, and churches. As Notice 99-14 discusses, the sales tax exemption for religious organizations extends to synagogues, mosques, and churches and to organizations that serve as a hierarchy for synagogues, mosques, and churches. It does not embrace affiliated organizations like the XXXX that act in support of a religion or religious objectives. Accordingly, this sales tax exemption for "religious organizations" does not apply to your organization. Please note that if any other similar organization in Kansas is claiming entitlement to this exemption as a religious organization, they likely are in violation of the law and may be subject to fines and penalties.

If you need to discuss anything further, 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

Enclosure

Date Composed: 05/29/2003 Date Modified: 05/29/2003

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