Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Nonprofit organization
Topic
Taxability of Persons and Transactions
Date Issued
12-19-1994
December 19, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear**********************
This will reply to your letter of November 29, 1994 and your recent phone conversation with a member of my Tax Policy staff in which you ask about the application of certain tax exemptions to*************************** (the "Taxpayer") .
FACTS
The Taxpayer, an organization exempt from federal income taxation under Internal Revenue Code §(IRC) 501(c)(3), is a membership corporation providing services to all state regulatory bodies. The Taxpayer proposes to create a national "one-stop filing" system for securities registration material to be filed with the states. The Taxpayer will enable securities filers, including corporate filers and their agents, mutual funds, unit investment trusts and others, to file securities registration documents through electronic means. The Taxpayer will act as both a facilitator and as a data base for securities registration filings to be filed with the securities regulatory bodies of the various states, according to the individual requirements of each state.
The Taxpayer has recently moved its offices to Virginia, and requests exemption from Virginia corporate income, personal property, and sales and use taxes.
RULING
Corporation Income Tax
Code of Virginia § 58.1-401 and Virginia Regulation (VR) 630-3-401 (F) (copies enclosed) exempt from the state income tax nonprofit corporations which are exempt from federal income tax under IRC §501 (c)(3).
Based on the determination by the Internal Revenue Service that the Taxpayer qualifies for exemption from federal income tax under IRC §501(c)(3), and the Virginia statute and regulation cited, the Taxpayer qualifies for exemption from Virginia income tax. However, if the Taxpayer has unrelated business taxable income as defined in IRC § 512, it must file a Virginia return and pay Virginia income tax on such income.
Qualification for tax exempt status in Virginia is dependent upon continued status as a tax exempt organization by the Internal Revenue Service. Loss of federal status would void the analogous Virginia status.
Although the Taxpayer is exempt from the Virginia corporate tax on income it may receive, it is not exempt from the requirement that it withhold Virginia individual income tax from the wages of its employees.
Personal Property Tax
Personal property taxes are administered by the local commissioners of the revenue, not by the Department of Taxation. In addition, the department is not charged with the responsibility for giving advisory opinions in this area.
The commissioner of the revenue in the locality where the Taxpayer is located must determine if the property is exempt based on one of the exempt classifications in Chapter 36 (§ 58.1-3600 et seq.) of Title 58.1 of the Code of Virginia. If the commissioner of the revenue does not make a favorable determination, the Taxpayer could consider asking for a special exemption in the Code of Virginia. The local governing body must first hold a hearing on this issue. Next, a bill would have to be introduced for consideration by the General Assembly in accordance with Article X, §6(a)(6) of the Constitution of Virginia. If the General Assembly passed the bill, the Taxpayer's property would be exempt from local taxation.
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 Code of Virginia §§ 58.1 -609.1 through 58.1 -609.13. The Virginia courts have consistently required strict construction of these exemptions, i.e., where there is any doubt as to the application of an exemption, the doubt is resolved against the one claiming the exemption. See Golden Skillet Corporation v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).
You cite three specific exemptions which you believe are applicable to the Taxpayer. I will address each exemption you cite separately.
Government Exemption: Code of Virginia §58.1-609.1(4) exempts from the retail sales and use tax purchases of tangible personal property by the United States, Virginia and political subdivisions of Virginia. Purchases and sales by other states and their localities are generally taxable.
Based on the information provided, the Taxpayer is not an instrumentality of the federal government, nor is it an agency or political subdivision of the Commonwealth of Virginia. Instead, the Taxpayer is a nonprofit corporation established under the laws of a state other than Virginia to perform services for the various states. The Taxpayer maintains a separate identity from the state. Accordingly, the government exemption provided by Code of Virginia §58.1-609.1 (4) is not applicable.
Temporary Storage Exemption: Code of Virginia § 58.1 -609.3(1) exempts from tax purchases of construction materials, temporarily stored in Virginia, by a contractor which are to be used outside of Virginia in an exempt construction project. The exemption is restricted to construction materials that are to be incorporated into exempt real property construction and could be purchased tax free by the contractor in the other state or nation. Because the Taxpayer is not a contractor and does not engage in real property construction projects, this exemption is not available.
Educational Exemption: Code of Virginia §58.1 -609.4(2) provides an exemption for purchases and sales of tangible personal property by nonprofit, noncommercial educational telecommunications entities. To qualify for this exemption, a taxpayer must meet several tests. First, the taxpayer must be a telecommunications entity. Second, the organization must not be operated for profit. Third, its programming must be noncommercial.
Based on the information provided, the Taxpayer satisfies only one of the criteria, that is, it is not operated for profit. However, the Taxpayer is not a telecommunications entity, and it does not conduct any programming. The only educational activities involve annual and other conferences throughout the year which provide education and training to state regulatory and other members who deal with securities regulations and electronic securities filing systems.
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 of the tax, the department has no authority to grant such an exemption. Therefore, the Taxpayer is required to pay the tax to its vendors on all purchases of tangible personal property. If a vendor is not registered to collect the tax, the Taxpayer must report and pay use tax on a consumer use tax return, Form ST-7.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8908F
Rulings of the Tax Commissioner