Tax Type
Retail Sales and Use Tax
Description
Nonprofit archaeological center; Purchases
Topic
Taxability of Persons and Transactions
Date Issued
11-09-1984
November 9, 1984
Re: Request for Ruling/Sales and Use Tax
Dear ******
This will reply to your letter of October 11, 1984 in which you submit a request for a ruling on the applicability of the sales and use tax to purchases of tangible personal property for use by the *****.
While the ***** ("Center") is an organization exempt from state and federal income taxation under Internal Revenue Code § 501(c)(3), it does not automatically enjoy an exemption from the sales and use tax. The Virginia courts have traditionally held that exemptions from the sales and use tax are to be strictly construed, see Commonwealth v. Community Motor Bus, 214 Va. 155, 198 S.E.2d 619 (1973). Therefore, an exemption from tax is not allowable unless specifically provided for in law.
You note that the Center is engaged in conducting archaeological research, promoting preservation of cultural resources, and providing educational opportunities in archaeology. Virginia Code § 58-441.6(q) provides an exemption for tangible personal property that is used "directly and exclusively in basic research...in the experimental or laboratory sense" and Virginia Code § 58-441.6(t) provides an exemption for tangible personal property used "by a college or other institution of learning." However, a review of case law reveals that neither exemption is available to the Center.
For items used in research activities to be exempt, the research must first be in the experimental or laboratory sense. In Commonwealth v. Research Analysis Corporation, 214 Va. 161, 198 S.E.2d 622 (1973), the Virginia Supreme Court found:
"Experimental" pertains to a test or trial, a tentative procedure or policy adopted to discover, confirm, or disprove something doubtful...(and) "Laboratory" pertains to a place where scientists perform experimental work...
While the research conducted by the Center may be scientific in nature, I do not feel that an exemption is available based upon the court's definitions of "experimental" and "laboratory" above as such research is not designed to discover, confirm, or disprove something doubtful. Even if the basic research exemption was deemed applicable to the Center, an exemption would not be available for office supplies and equipment, copy and duplication charges, etc. as such materials are not "used directly" in research.
The exemption for "institutions of learning" is also a restrictive provision. Virginia Retail Sales and Use Tax Regulation 1-96 provides that "an...institution of learning must be similar to a college" to gain an exemption. The regulation specifically states that "to be similar to a college, an institution must (1) employ a professionally-trained faculty; (2) enroll and graduate students on the basis of academic achievement; (3) prescribe courses of study; and (4) provide instruction at regular intervals over a reasonable period of time." The Virginia Supreme Court, in Department v. Progressive Community Club, 215 Va. 732, 213 S.E.2d 759 (1975), validated this regulation, holding that "the proper level of education at which to commence the exemption is that accepted as the first level in the public school system." Inasmuch as the Center is not a school, it is not entitled to exemption.
I have reviewed the various other exemptions provided by law, but can find none under which the Center can claim an exemption from the sales and use tax.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner