Bulletin Number
VTB 09-8
Tax Type
Retail Sales and Use Tax
Description
The Sale of Food or The Sale of Tickets to Events That Include Food By Nonprofit Organizations
Topic
Exemptions
Nonprofits
Tangible Personal Property
Date Issued
06-23-2009
TAX BULLETIN 09-08
Virginia Department of Taxation
IMPORTANT INFORMATION REGARDING
THE SALE OF FOOD OR THE SALE OF TICKETS TO EVENTS THAT INCLUDE FOOD BY NONPROFIT ORGANIZATIONS
Effective July 1, 2009, legislation enacted in the 2009 Session of the General Assembly, House Bill 1779 (Acts of Assembly 2009, Chapter 338), changes the Retail Sales and Use taxation of the sale of 1) food, prepared food and meals (“food”) and 2) tickets to events that include the provision of food by certain nonprofit organizations. As a result of this legislation, any nonprofit organization that is eligible to be granted an exemption on its purchases of tangible personal property under Va. Code § 58.1-609.11, and that is otherwise eligible for the occasional sale exemption, may make exempt sales of 1) food and 2) tickets to events that include the provision of food, provided that such sales take place on 23 or fewer occasions in a calendar year. The exemption granted by this new law is restricted to nonprofit entities eligible for an exemption on their purchases pursuant to Va. Code § 58.1-609.11, which applies only to entities that are exempt from federal income taxation under Internal Revenue Code (“IRC”) § 501(c) 3 or (c) 4.
The Department of Taxation (“TAX”) will continue to allow organizations exempted from federal income taxation under other provisions of IRC § 501(c) to sell food and tickets to events that include the provision of food so long as they satisfy the requirements set forth in Virginia Tax Bulletin (“VTB”) 08-11 (October 20, 2008).
Additionally, all nonprofit organizations may continue to make tax exempt sales of tangible personal property, including food and tickets to events that include the provision of food, under the occasional sales rules applicable to all taxpayers.
Background
Although a limited number of nonprofit organizations enjoy an exemption on their sales of tangible personal property under Va. Code § 58.1-609.11, in general, nonprofit organizations must collect the Retail Sales and Use Tax on their sales of tangible personal property, including food, unless a specific exemption applies. Sales by nonprofit organizations may also qualify for exemption as occasional sales. The occasional sale exemption is discussed in more depth under “Occasional Sales” below.
Additionally, prior to October 1, 2008, tickets sold by a nonprofit organization to an event that included the provision of a catered meal were subject to the Retail Sales and Use Tax. See Public Document (“PD”) 08-76 (June 6, 2008). TAX’s longstanding policy on this issue is set forth in its Retail Sales and Use Tax regulation sections concerning Admissions and Meals. The Meals regulation section, 23 Virginia Administrative Code (VAC) 10-210-930 states “(r)etail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable.” This policy is also addressed in the Admissions regulation section 23VAC 10-210-30, which provides:
The tax does not apply to sales of tickets, fees, charges, or voluntary contributions for admissions to places of amusement, entertainment, exhibition, display, or athletic contests, nor to charges made for participation in games or amusement activities. However, “cover charges” or “minimum charges” which include the provision of or entitlement to food, drinks, or other tangible personal property constitute a sale of property and are subject to the tax.
Tax Bulletin 08-11
On October 20, 2008, TAX issued VTB 08-11, which announced a change in TAX’s policy with respect to sales of food and tickets to events that include the provision of food by organizations that are exempt from federal income taxation under IRC § 501(c). VTB 08-11 authorizes any organization exempt from federal income taxation under IRC § 501(c) to make sales of food and tickets to events that include the provision of food without collecting sales tax on such sales, provided certain requirements are met. Among these requirements, the organization must 1) not be required to register as a dealer under Va. Code § 58.1-612 based on its other activities; 2) pay sales tax to its vendors on the purchase price paid by the organization for the food in the absence of a valid exemption certificate issued by TAX pursuant to Va. Code § 58.1-609.11 for the purchase of tangible personal property; 3) limit such events to 12 occasions per year; and 4) use any profits from the sales of food or event tickets solely to support the organization or to donate to another IRC § 501(c) organization. In addition, the entity must maintain records for three years after each event to verify these requirements.
By allowing qualifying organizations to make tax exempt sales on 12 occasions a year, VTB 08-11 expanded TAX’s interpretation of the occasional sale rule. The intent of the 12-sale rule was to limit competition with registered dealers.
New Legislation
In response to VTB 08-11, some nonprofit organizations expressed concern that nonprofit organizations should be allowed to make tax-exempt sales of food and tickets to events including the provision of food on more than 12 occasions per year. As a result, House Bill 1779 was enacted in the 2009 Session of the General Assembly. The law provides that effective July 1, 2009, any nonprofit organization eligible to be granted a nonprofit entity exemption on its purchases pursuant to Va. Code § 58.1-609.11 may make exempt sales of food and tickets to events that include the provision of food, provided such sales are made on no more than 23 occasions per year.
Virginia provides a Retail Sales and Use Tax exemption for purchases of tangible personal property for use or consumption by any nonprofit organization that meets the criteria and follows the procedures set forth in Va. Code § 58.1-609.11 and is issued a certificate of exemption by TAX. The exemption is limited to the following categories of nonprofit organizations:
- Entities exempt from federal income taxation under IRC § 501(c)(3.
Entities exempt from federal income taxation under IRC § 501(c)(4) that are organized for a charitable purpose.
Entities with annual gross receipts of less than $5,000 that are organized for at least one of the purposes set forth in IRC § 501(c)(3) or one of the charitable purposes set forth in IRC § 501(c)(4).
Although House Bill 1779 expands the number of occasions on which any nonprofit organization eligible under Va. Code § 58.1-609.11 for an exemption on its purchases of tangible personal property may make exempt sales to 23 occasions per year, the organization must abide by all other requirements of the occasional sale exemption.
Occasional Sales
Virginia law authorizes an exemption for an “occasional sale,” which is defined as:
- A sale of tangible personal property, not held or used by a seller in the course of any activity for which he is required to hold a certificate of registration. . . provided such sale or exchange is not one of a series of sales and exchanges sufficient in number, scope, and character to constitute an activity requiring the holding of a certificate of registration.”
TAX has consistently held that the occasional sale exemption does not apply where sales are made over an extended period of time, because such sales are sufficient in number, scope, and character to require the taxpayer to register for and collect the Retail Sales and Use Tax. For example, in PD 92-260 (December 28, 1992), sales made at the taxpayer’s annual eleven-day arts celebration did not qualify for the occasional sale exemption. TAX ruled that events of such duration have the potential to place other local dealers at a competitive disadvantage. For purposes of determining what constitutes an occasion, an organization may count a fundraising, social, or similar activity as one occasion, provided the event does not extend beyond a seven-day consecutive period. Every seven-day consecutive period thereafter shall constitute an additional occasion for purposes of this Tax Bulletin.
Example: A nonprofit organization holds a three-day fundraising event. The purchase of one ticket entitles the ticket holder to a catered dinner on Friday, a catered lunch and dinner on Saturday, and a catered breakfast on Sunday. The three-day fundraiser constitutes one event. This is the case even if the organization makes separate ticket sales for breakfast, lunch, and dinner.
Treatment of Other IRC § 501(c) Organizations
House Bill 1779 generally authorizes only IRC §§ 501(c)(3) and 501(c)(4) organizations to make exempt sales of food, prepared food, and tickets to events including the provision of such items on 23 or fewer occasions per year. Other IRC § 501(c) organizations will continue to be subject to the rules set forth in VTB 08-11, and may only make exempt sales of food and tickets to events including the provision of food if the following requirements are met:
The organization must not be required to register as a dealer under Va. Code § 58.1-612 based on its other activities;
The organization must pay sales tax to its vendors on the purchase price paid by the organization for the food in the absence of a valid exemption certificate issued by TAX pursuant to Va. Code § 58.1-609.11 for the purchase of tangible personal property;
The organization must limit such events to 12, rather than 23, occasions per year;
The organization must use any profits from the sales of food or event tickets solely to support the organization or to donate to another IRC § 501(c) organization; and
The organization must maintain records for three years after each event to verify these requirements.
If you have any questions, please visit our website at www.tax.virginia.gov, or contact TAX at (804) 367-8037.
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