January 10, 2025
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will respond to your letter in which you request a ruling on the application of the retail sales and use tax to the rental of hotel event spaces and the exemption for nonprofit organizations.
FACTS
A nonprofit organization (the “Organization”) that rents banquet and meeting rooms for events asks two specific questions regarding the space rented by hotels. Each question will be addressed separately below.
This ruling is based on the facts provided by the Taxpayer and summarized above. Any change in facts or the introduction of new facts may lead to a different result.
RULING
For purposes of Virginia’s retail sales and use tax, Virginia Code § 58.1-623 provides that all sales or leases of tangible personal property are presumed to be subject to tax until the contrary is established. Because the sales and use tax is a transactional tax, the determination as to the taxation of a specific transaction is based on the underlying documents that support the transaction.
Question 1
Must hotels that offer banquet space and overnight accommodations (even if no overnight accommodations are used) charge sales tax on rentals of their meeting space?
Generally, fees charged for the use of real property, for which an overnight stay is not included, are not taxable provided that no tangible personal property is built in to the total rental charge. See Public Document (P.D.) 87-69 (2/27/1987), P.D. 98-85 (5/7/1998), P.D. 02-38 (4/1/2002), P.D. 12-82 (5/11/2012), and P.D. 23-74 (6/23/2023).
Virginia Code § 58.1-603 4 provides that the sales tax applies to “gross proceeds derived from the sale or charges for accommodations furnished to transients as set out in the definition of ‘retail sale’ in Virginia Code § 58.1-602.” The Department has interpreted the definitions of “retail sale,” “accommodations,” and “transient” found in Virginia Code § 58.1-602 to require an overnight stay for tax to apply to the rental of venue space without the transfer of tangible personal property. See Title 23 of the Virginia Administrative Code (VAC) 10-210-690 B, P.D. 96-23 (3/29/1996), P.D. 04-208 (11/30/2004), and P.D. 13-212 (11/14/2013).
Further, Virginia Code § 58.1-603 imposes the retail sales tax on the sale or rental of tangible personal property in Virginia. The tax is imposed on the gross proceeds derived from a lease or rental of tangible personal property. “Gross Proceeds” includes the total amount charged for tangible personal property. See Virginia Code § 58.1-602. The Department has determined that when a dealer charges one lump sum amount for both taxable and nontaxable items in a transaction, the tax is applied to the entire transaction. See P.D. 87-69, P.D. 89-257 (9/25/1989), and P.D. 20-177 (10/6/2020).
In order for a conference, event, or meeting space in a hotel or a venue that offers overnight accommodations to be exempt from tax, the rental documents, invoices, contracts, or similar transaction documents can only reflect the charge for the desired space and related exempt services. Charges for taxable property or services would have to be provided under a separate agreement and invoice.
Question 2
Would nonprofit organizations be exempt from paying the retail sales tax on meeting room rental?
As indicated above, meeting room rentals are exempt from the retail sales and use tax unless they are combined with the provision of tangible personal property or accommodations. This would apply to individuals, businesses, and nonprofit organizations.
With regard to the purchase or rental of tangible personal property, Virginia Code § 58.1-609.11 B provides that a nonprofit entity may purchase or rent such property for its use or consumption provided that it (i) files an appropriate application with the Department, (ii) meets the applicable criteria, and (iii) is issued a certificate of exemption from the Department for the period of time covered by the certificate.
To qualify for an exemption, a nonprofit organization must meet all of the following requirements:
• The organization must be exempt from federal income taxation under §§ 501(c)(3), 501(c)(4), or 501(c)(19) of the Internal Revenue Code (IRC). If the organization has annual gross receipts less than $5,000 and is organized for one of the purposes set in IRC §§ 501(c)(3) or 501(c)(4), it must submit a mission statement.
• The organization must provide proof of compliance with Virginia’s law relating to organizations that solicit contributions in Virginia.
• The annual administrative costs of the organization, including salaries and fundraising, must not exceed 40% of its annual gross revenue.
• An organization with gross annual revenue of at least $750,000 in the previous year must provide a financial review performed by an independent Certified Public Accountant (CPA). The Department may require an organization with gross annual revenue of at least $1.5 million in the previous year to provide a financial audit performed by an independent CPA in lieu of a financial review.
• The organization must provide an estimate of the total amount of tangible personal property purchased in Virginia for the preceding year and the current year. Purchases of any tangible personal property that will be furnished to a contractor performing construction, installation, repair or any other service with respect to real property are not included.
• If the organization is required to file a federal Form 990, 990EZ, 990PF, or 990N with the Internal Revenue Service (IRS), a copy must be provided to the Department.
• If the organization is not required to file, the names and address of two members of the organization’s Board of Directors must be provided along with the location of the financial records. All financial records must be available for inspection.
In order to make purchases of tangible personal property and the rental of accommodations exempt of sales tax, a nonprofit organization must obtain a certificate of exemption from the Department. Nonprofit entities can apply for exemption certificates through the Department’s website. Accordingly, the Organization would be exempt from paying sales tax for the purchase or rental of eligible tangible personal property provided it follows the procedures set forth in Virginia Code § 58.1-609.11 and obtains the proper exemption certificate from the Department.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy and Legal Affairs, Adjudication and Resolution Division, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4935.B