Tax Type
Retail Sales and Use Tax
Description
Legislative Consideration of Exemption Request
Topic
Reports
Date Issued
09-30-1994
Virginia Department of Taxation
94-13
RETAIL SALES AND USE TAX:
LEGISLATIVE CONSIDERATION OF EXEMPTION REQUEST
LEGISLATIVE CONSIDERATION OF EXEMPTION REQUEST
The 1994 General Assembly passed legislation (Senate Bill 148, Chapter 222, 1994 Acts of Assembly) establishing new standards and procedures which must be satisfied and followed by organizations seeking exemptions from the sales and use tax. The legislation, effective July 1,1994, was recommended by the Joint Subcommittee of the Senate and House Finance Committees to Develop Criteria For Evaluating Sales and Use Tax Exemption Requests (SJR 249, 1993 General Assembly).
Information Requirements - Organizations Seeking an Exemption
Formerly, the patron of any legislation seeking a sales and use tax exemption was required to submit information based on various statutory criteria to the Division of Legislative Services prior to consideration of the legislation by the committee.
Under the new law, the patron must submit information to the Department of Taxation (TAX) by November I prior to the session in which the exemption is sought.
Nonprofit Organizations
The new law also requires organizations seeking an exemption under the educational (§ 58.1-609.4), medical-related (§ 58.1-609.7), civic and community services (§58.1-609.8) and cultural (§ 58.1-609.9) groupings to submit the following additional information relating specifically to the operation and administration of the organization:
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- (1) Documentation indicating exemption from federal income taxation under either §501(c)(3) or (4) of the Internal Revenue Code;
(2) The charitable purpose of the entity and how those functions or services are provided to Virginia citizens;
(3) Documentation that no more than one-third of the organization's gross annual revenue is spent on general administration and fundraising;
(4) The location of the organization's financial records and the salaries, including benefits, of the five most highly compensated employees;
(5) Proof of compliance with Chapter 5 of Title 57 (Solicitation of Contributions) of the Code of Virginia from organizations subject to it; and
(6) The names and addresses of a volunteer board of directors.
- (1) Documentation indicating exemption from federal income taxation under either §501(c)(3) or (4) of the Internal Revenue Code;
For any nonprofit organization granted an exemption under the new information requirements set forth above, Item 3 (relating to general administration and fundraising expenses) constitutes a continuing obligation and condition for maintaining tax exempt status. Failure to comply with this requirement may constitute grounds for the revocation of the organization's sales and use tax exemption.
New Questionnaire for Exemption Requests
TAX has developed a questionnaire to assist organizations in satisfying the information requirements set out above. An organization seeking an exemption should obtain the questionnaire from TAX, complete it, and forward it and the required information to the legislator who will sponsor the bill for exemption. The legislator must sign the questionnaire and submit it and the accompanying documentation to TAX by November 1.
Questionnaires ("Request for Sales and Use Tax Exemption") may be obtained from TAX by calling (804) 367-8010 or by writing to the Department of Taxation, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23282-1880. Legislators should forward completed and signed questionnaires to the department's Office of Tax Policy at the above address.
Upon receipt, TAX will review the questionnaire and issue a preliminary determination to the legislator and to the Division of Legislative Services, by January 5, that the organization has furnished all the required information. The Division of Legislative Services may not draft a bill providing for a sales and use tax exemption unless the drafting request is accompanied by TAX's preliminary determination.
Penalty For Failing to Comply with New Reporting Requirements
Effective July 1,1994, organizations must remain in compliance with all the information requirements noted above. Failure to do so may constitute grounds for revocation of exempt status.
Study of Existing Exemptions - New Information Requirements for Exempt Organizations
Under Va. Code § 30- 19.05, the Secretary of Finance is required to investigate and analyze, on an ongoing basis, each category of exemptions set out in Va. Code §§ 58.-609.1 through 58.1-609.10. A report is due to the House and Senate Finance Committees each year by December 1. Senate Bill 148 requires that the information and questionnaire be updated every five years by the organizations being studied. The information is due to TAX by July 1 prior to the December 1 deadline for the report.
For additional information: Contact the Office of Taxpayer Services, Virginia Department of Taxation, P.O. Box 1115, Richmond, Virginia 23208-1115, (804) 367-8037.
Rulings of the Tax Commissioner