Document Number
95-115
Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations; Denominational governing body
Topic
Taxability of Persons and Transactions
Date Issued
05-12-1995

May 12, 1995


Re: §58.1-1821 Application: Sales and Use Tax


Dear***************

This will reply to your letter of September 26, 1994 seeking correction of the sales and use tax audit assessments for*************( the "Taxpayers").
FACTS

The Taxpayers are part of the hierarchical administration of the************** Church. The Taxpayers are the governing bodies for both the**********Church in the *******area and also the statewide annual conference for**************Churches. The Taxpayers are both organized under Internal Revenue Code 501 (C)(3) and serve as an administrative division of the***************Churches. The Taxpayers' business location contains a chapel where worship services are held where the general public has free access to the building and the services. The Taxpayers also provide meals, bus fare and other emergency aid to transient and homeless people. The Taxpayers also provides pamphlets, brochures and videos to member churches. The Taxpayer takes the position that all items purchased for use in its administrative offices qualify for the sales and use tax exemption provided under Code of Virginia §58.1-609.8(2).

The Taxpayers also submit that the interpretation of the Code of Virginia §58.1609.8(2) is unconstitutional under the First and Fourteenth Amendments of the United States Constitution because it unjustifiably favors those churches organized along congregational rather than hierarchical or connective lines. In this case, the Taxpayers' churches are organized along hierarchical lines where the administrative functions of the Taxpayers are set up to assist, guide and oversee their individual Virginia churches and congregations. It is the Taxpayers' position that many of the purchases held taxable in the audit would be exempt provided they were purchases by the individual churches for use in the church offices in carrying out the work of the church. However, due to the hierarchical organization of the*********Church in Virginia, purchases of the same tangible personal property by administrative offices located away from the public church would be taxable.
DETERMINATION

Code of Virginia §68.1-609.8(2) provides a limited exemption for the sales and use tax for "tangible personal property... purchased by churches organized not for profit... for use (i) in religious services by a congregation or church membership while meeting together in a single location, and (ii) in the libraries, offices, meeting or counseling rooms or other rooms in the public church buildings used in carrying out the work of the church and its related ministries..." As set forth in the enclosed ruling letters, denominational governing bodies and related organizations do not qualify for the exemption as the exemption is generally limited only to property used inside public church buildings. This policy has also been communicated in the Virginia Sales and Use Tax Expenditure Study (see December 1992 edition).

To qualify for the exemption set forth above, a church must have a congregation or membership that meets at a single location for regularly scheduled worship services. As provided in your letter, the Taxpayers' building houses a chapel which is used on occasions to hold worship services which are open to the general public. While such services are open to the general public, it is understood by this office that the worship services are mainly for the employees of the Taxpayers. It is also understood that the chapel is used for guest speakers who are visiting the offices of the Taxpayers. The Taxpayers' primary function is to provide administrative support to the member churches throughout the Richmond area and the state. Religious services held in the chapel are secondary in nature.

Additionally, it does not appear that employees of the Taxpayers constitute a congregation or membership in the sense that these terms are applicable to a church. However, assuming for sake of argument that a "congregation" exists, the exemption in this case would be limited only to items used in the actual religious worship service (see PD 88-216).

Therefore, based on the all of the foregoing and the rule of strict construction adopted by the Virginia courts in the interpretation of sales and use tax exemptions, [see Commonwealth, Dep't. of Taxation v. Wellmore Coal Corp., 228 Va. 149, 320 S.E.2d 509 (1 984)], I find no basis for granting the blanket exemption set forth in 58.1-609.8(2) to the Taxpayers. However, the Taxpayers are entitled to an exemption for purchases it makes on behalf of its individual member churches (see PD 90-164). The Taxpayers may purchase exempt of the tax for purposes of reselling or giving items away to its member churches, tangible personal property for use in religious worship services and public church buildings for use in carrying out the work of the member churches. This exemption does not extend to the facilities of the Taxpayers, but only applies to tangible personal property for exempt use by its member churches.

I will have the auditor review the audit workpapers and revise the audit to remove any tangible personal property for exempt use by member churches. Once the necessary revisions are made, a revised assessment will be issued. If you should have any further questions, please feel free to contact the department.
                        • Sincerely,



                          Danny M. Payne
                          Tax Commissioner


OTP/8518K

Rulings of the Tax Commissioner

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