February 9, 2021
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), requesting a ruling regarding the Department’s denial of the nonprofit exemption. I apologize for the delay in responding to your request.
FACTS
The Taxpayer is a nonprofit in Virginia. Upon attempting to renew its nonprofit application, the Taxpayer submitted a financial review to accompany the application package. The Department’s Nonprofit Exemption Unit did not grant the exemption because the Taxpayer’s gross annual revenue exceeded $1 million in the previous year. In the Department’s letter to the Taxpayer, it was explained that organizations whose gross annual revenue exceeds $1 million are required to submit a financial audit conducted by an independent certified public accountant pursuant to Virginia Code § 58.1-609.11. The Taxpayer requests the Department accept the financial review presented as the Taxpayer was not aware of the requirement for an independent financial audit.
RULING
Virginia Code § 58.1-609.11 (4) states:
“If the entity's gross annual revenue was at least $750,000 in the previous year, then the entity must provide a financial review performed by an independent certified public accountant. However, for any entity with gross annual revenue of at least $1 million in the previous year, the Department may require that the entity provide a financial audit performed by an independent certified public accountant. If the Department specifically requires an entity with gross annual revenue of at least $1 million in the previous year to provide a financial audit performed by an independent certified public accountant, then the entity shall provide such audit in order to qualify for the exemption under this section, which audit shall be in lieu of the financial review…”
The Taxpayer argues that the Department did not request a financial audit before the Taxpayer applied for the renewal, and that it had already performed a financial review. Thus, the Taxpayer contends that the Department should accept the financial review in lieu of the independent financial audit.
Pursuant to Virginia Code § 58.1-609.11, the Department is authorized to require a financial audit performed by an independent certified public accountant for organizations with gross revenues exceeding $1 million. The Nonprofit Exemption Unit, in its letter, indicated the Taxpayer is required to submit a financial audit performed by an independent certified public accountant in order for the Department to reconsider the renewal application. In accordance with Virginia Code § 58.1-609.11, there is no basis to overrule the requirement. Therefore, the Taxpayer should provide the requested financial audit for review in order to renew its nonprofit exemption.
The Code of Virginia section cited, along with other reference documents, is available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3410L