Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Items distributed by nonprofit organization
Topic
Taxability of Persons and Transactions
Date Issued
09-16-1994
September 16, 1994
Re: Ruling Request: Retail Sales and Use Tax
Dear**************
This will reply to your letter requesting a ruling on behalf of******** (the "Taxpayer") concerning the application sales and use tax on the purchase of items donated to nonprofit organizations.
FACTS
The Taxpayer, a nonprofit organization exempt from income taxation under §501(c)(3) of the Internal Revenue Code, assists needy individuals, by distributing food, clothing, medicines, and other necessities to other nonprofit organizations which serve such individuals. Many of these goods are received from contributions by donors; however, the Taxpayer also purchases goods which are subsequently donated to nonprofit organizations. The Taxpayer states that since they are donating their inventory to other nonprofit organizations, then the purchase of this inventory should be exempt from the tax under Va. Code §58.1-609.8(5).
RULING
There is no general exemption from Virginia Retail Sales and Use Tax for nonprofit organizations. The only exemptions are those set out in Va. §§Code 58.1-609.1 through 58.1-609.13. 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.
Generally, Va. Code § 58.1-624(C) provides that if a taxpayer gives an exemption certificate when purchasing tangible personal property and subsequently makes another use other that the exempt use of the property, the taxpayer would be subject to the tax on the cost of the property. For example, if property is withdrawn from an exempt resale inventory for use or consumption by a retailer, the tax applies to the cost of the property withdrawn. However, Va. Code §58.1-609.8(5) is intended to provide an exemption to such entities which purchase inventory exempt of the tax but subsequently withdraw the inventory for donation to an organization exempt from taxation under §501(c)(3) of the Internal Revenue Code or the Commonwealth, any political subdivision or the Commonwealth, any school, agency or instrumentality thereof.
In that here is no statutory provision which allows the Taxpayer to give its suppliers an exemption certificate in order to purchase tangible personal property exempt of the tax, the Taxpayer must pay the tax to the suppliers on such purchases. If the supplier is not registered to collect the tax or fails collect the tax, the Taxpayer must report and pay the use tax on a Consumer Use Tax Return, Form ST-7. Further, Va. Code § 58.1-609.8(5) does not allow the Taxpayer to request a refund from a supplier or the department for the tax paid on inventory even though it is being donated to a §501(c)(3) organization.
The Taxpayer references, as an analogous situation, the department's P.D. 93-47 (March 4, 1993) in which an entity was informed that the exemption under Va. Code 158.1-608(A)(4) (recodified as Va. Code § 58.1-609.8(5)) was available for reading materials regularly held in inventory and withdrawn for donation to a nonprofit organization. This entity was a dealer that was registered to collect tax on the sale of reading materials. Thus, such reading materials could be purchased exempt of the tax when placed in a inventory for sale or resale. When the reading materials were subsequently withdrawn from inventory and donated to a nonprofit organization through one of its assistance programs, the materials were clearly exempt from the tax under Va. Code § 58.1-609.8(5). In the instant situation, the Taxpayer is not a dealer authorized to purchase inventory for sale or resale exempt of the tax and has not provided any other information to indicate that the items donated could be purchased exempt of the tax.
The Virginia courts have adopted a rule of strict construction of exemption statutes, i.e., when there is doubt as to the application of the exemption that doubt is resolved against the person claiming the exemption. Indicative of the fact that the exemption does not apply in this instance, there are a limited number of organizations which have statutory authority to purchase exempt of the tax tangible personal property that is distributed for charitable and educational purposes. For example, Va. Code §58.1-609.9(4) provides an exemption from tax for:
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- Tangible personal property purchased for charitable or educational purposes by an organization exempt under §501(c)(3) of the Internal Revenue Code and organized exclusively (i) to care for the spiritual needs of American Indians, (ii) to communicate to the non-Indian the values, customs, philosophy and special needs of the American Indian, (iii) to meet the urgent needs of American Indians through nationwide charitable distribution programs, and (iv) to encourage awareness of American Indian arts, crafts and customs provided such property is distributed by the organization through its nationwide charitable distribution program. (Emphasis added.)
While the Taxpayer performs a very worthwhile service in the United States and throughout the world, unfortunately, there is no basis for providing an exemption from sales and use tax for tangible personal property purchased by the Taxpayer for donations to other nonprofit organizations. If you have any questions regarding this ruling, please contact********* at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7742N
Rulings of the Tax Commissioner