Bulletin Number
VTB 99-9
Tax Type
Retail Sales and Use Tax
Description
New Filing Requirements for Nonprofit Organizations Exempt from the Tax
Topic
Exemptions
Date Issued
06-18-1999
RETAIL SALES AND USE TAX:
NEW FILING REQUIREMENT FOR NONPROFIT ORGANIZATIONS
EXEMPT FROM THE TAX
The 1999 General Assembly passed legislation (Senate Bill 829, Chapter 762, 1999 Acts of Assembly and House Bill 1571, Chapter 776, 1999 Acts of Assembly) which establishes a new reporting requirement for nonprofit organizations exempt from the sales and use tax. Churches are excluded from the new requirement. The legislation also establishes a June 30, 2001, sunset date for existing nonprofit organization exemptions that currently do not have a sunset date.
Filing Requirement - Nonprofit Organizations Exempt From Sales and Use Tax
By July 1, 2000, all nonprofit organizations that have qualified for a sales and use tax exemption, except churches, are required to submit to the Department of Taxation updated information relating to the operation and administration of the organization. The General Assembly will use this information when considering whether to extend the exemptions due to expire in a particular year.
Information to be Filed With the Department of Taxation:
_ An estimate of the annual state and local tax savings as a result of the exemption;
_ Beneficiaries of the exemption;
_ Direct or indirect local, state or federal government assistance received by the organization;
_ Extent to which the organization is exempt from the retail sales and use tax in other states;
_ Any external statutory constitutional or judicial mandates in favor of the exemption;
_ Other state taxes to which the organization is subject;
_ Similar organizations which are not entitled to the sales and use tax exemption;
_ Other criteria, facts, or circumstances which may be relevant to the request for exemption;
_ Verification of exemption from federal income taxation under either § 501(c)(3) or § 501(c)(4) of the Internal Revenue Code;
_ The purpose or purposes for which the entity is organized and operated, and the charitable functions and services it offers to Virginia citizens, along with an explanation of such services;
_ Proof that no more than forty percent of the organization's gross annual revenue, under generally accepted accounting principles, is spent on general administration and fundraising (e.g, Form 990);
_ The location of the organization's detailed financial records available for public inspection and certification that the records are true, accurate, and complete. Salaries, including all benefits, of the five most highly compensated employees;
_ Proof of compliance with Chapter 5 of Title 57 (relating to solicitation of contributions) from organizations subject to it; and
_ Names and addresses of a volunteer board of directors.
Questionnaire to Assist Nonprofit Organizations in Complying with Filing Requirement
The department plans to develop a questionnaire and instructions for use by nonprofit organizations to fulfill the new filing requirement.
After the initial July 1,2000 filing, the Department of Taxation will issue a numbered exemption certificate to organizations that have met the filing requirements discussed above and whose exemption has been extended by the 2001 General Assembly. The exemption certificate will be issued prior to June 30, 2001. Qualifying organizations will then provide the exemption number to vendors when making purchases exempt from sales and use tax. The exemption certificate will expire in accordance with the filing schedule below, and each organization's exemption certificate will be renewed when the updated information is filed and the exemption statute is extended by the General Assembly.
Ongoing Filing Requirement
After the initial filing on July 1, 2000, exempt nonprofit organizations will be required to file updated information with the Department of Taxation on a five-year cycle using the following schedule:
Exemption Group Filing Due Next Filing Due
Educational (§ 58.1-609.4) July 1, 2001 July 1, 2006
Medical-related (§ 58.1-609.7) July 1, 2002 July 1, 2007
Civic and community service ( § 58.1-609.8, Subsections 1 - 80) July 1, 2003 July 1, 2008
Civic and community service ( § 58.1 -609.8,
Subsections 81 and higher) July 1, 2004 July 1, 2009
Cultural (§ 58.1-609.9) and Miscellaneous ( § 58.1-609.10) July 1, 2005 July 1, 2010
Failure to Comply with New Reporting Requirement
The law provides that failure to file complete information with the Department in a timely manner will result in loss of the organization's sales and use tax exemption.
If you have any questions concerning the new filing requirement or related issues, please contact the department's Office of Tax Policy at (804) 367-8010.
Tax Bulletins