Tax Type
Corporation Income Tax
Retail Sales and Use Tax
Description
Nonprofit preschool learning center
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
10-25-1989
October 25, 1989
Re: Request for Ruling: Sales and Use Tax
Corporate Income Tax
Dear*****************
This will reply to your letter of September 11, 1989 seeking exemption from the Virginia income tax and retail sales and use tax for the ***************** (the "Taxpayer").
FACTS
The Taxpayer, a nonprofit organization, is a preschool learning center for 3 to 6 year olds, meeting in an established location with hours and schedule comparable to those of local public and private schools. It offers early childhood education with a focus on the child's cognitive and developmental skills utilizing the ***********method which is both a philosophy of education and a compatible system of education for guiding a child's individual growth, interests and abilities. It has been granted exempt status by the Internal Revenue Service under I.R.C. §501(c)(3). The Taxpayer seeks a similar exemption from Virginia income tax. Additionally, the Taxpayer seeks exemption from the Virginia retail sales and use tax.
RULING
Corporate Income Tax
Virginia Code §58.1-401 and Virginia Corporation Income Tax Regulation 630-3-401(F) exempt from the state income tax nonprofit corporations which are exempt from federal income tax under I.R.C. §501(c).
Based on the determination by the Internal Revenue Service that the Taxpayer qualifies for exemption from federal income tax under I.R.C.§ 501(c)(3), and the Virginia Code and regulation sections cited above, the Taxpayer qualifies for exemption from Virginia income tax. However, if the Taxpayer has unrelated business taxable income as defined in Internal Revenue Code §512, it must file a Virginia return and pay Virginia income tax on such income.
Retail Sales and Use Tax
There is no general exemption from the Virginia retail sales and use tax for nonprofit organizations. The only exemptions from the tax are set out in Virginia Code §58.1-608 (copy enclosed).
Certain preschools are exempt from the tax under Virginia Code §58.1-608(4)(i); however, this exemption is limited to preschools that hire only certified public school teachers and have a regularly prescribed curriculum. The fact that the Taxpayer hires certified ************* teachers as opposed to certified public school teachers disqualifies it from this exemption.
While I am mindful of the worthwhile purpose that the Taxpayer serves, absent a statutory exemption that would allow the Taxpayer to make purchases exempt from the tax, the department has no authority to grant such an exemption.
Therefore, the Taxpayer is required to pay the tax to the retailer on all purchases of tangible personal property if the retailer is registered to collect the tax. If the retailer is not registered to collect the tax, the taxpayer must report and pay the use tax on a Consumer Use Tax Return, Form ST-7.
Additionally, any nonprofit organization which regularly engages in selling tangible personal property is required to register as a dealer and collect and pay the tax on its retail sales. However, if the Taxpayer makes sales on three or fewer occasions within one calendar year it would not be required to collect sales and use tax as such sales would qualify for the occasional sales exemption (see Virginia Retail Sales and Use Tax Regulations 630-10-75 and 630-10-74(B), copies enclosed).
Let the department know if you have further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner