Tax Type
Retail Sales and Use Tax
Description
Government transactions; Membership association
Topic
Taxability of Persons and Transactions
Date Issued
10-11-1996
October 11, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This is in reply to your letter in which you seek correction of sales and use tax assessed
to the *******(the "Taxpayer") for the period March 1992 through February 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a nonprofit association whose membership is composed of airports and airport personnel. The Taxpayer charges membership dues and in return provides various services. As a result of the department's audit, the Taxpayer was assessed tax on fixed assets and recurring purchases used in its operations and in the provision of services to its membership.
The Taxpayer contests the tax assessed on certain purchases used to provide services to its members. The Taxpayer asserts that its member airports are entitled to purchase exempt of the tax since they operate under the jurisdiction of city, state, and local governments. The Taxpayer believes that the contested purchases should also qualify for the government exemption because such purchases are provided in the rendition of its services to airports and airport personnel as a benefit of membership.
DETERMINATION
Code of Virginia § 58.1-609.1(4) provides an exemption from the sales and use tax for "[t]angible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States." Virginia Regulation (VR) 630-10-45 further explains the exemption and provides that purchases must be made pursuant to official purchase orders paid out of public funds. United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd., 569 F. 2d 811 (4th Cir. 1978) involved a Virginia contractor engaged in a federal government contract. The opinion in that case required that one must be designated as its client's purchasing agent and authorized to bind the credit of its client in order to take advantage of any exemption that applies to such client.
Generally, the department has held membership associations to be the providers of exempt services and the membership dues are not taxable. As service providers, membership associations are subject to the tax on all purchases of tangible personal property used to provide their exempt services. See enclosed P.D. 95-134 (5/24/96) and its attachments.
Airports operated by political subdivisions of the Commonwealth or the federal government are entitled to purchase exempt of the sales tax. In this case, however, the disputed purchases were not made by an exempt airport. Instead, the Taxpayer as a membership association made purchases and used such purchases in the provision of services to member airports and airport personnel. The disputed purchases were not made in accordance with the criteria stated in the regulation and provided under the caselaw. As such, the purchases do not qualify for the government exemption.
This decision is consistent with the determination in P.D. 93-170 (7/28/93), copy enclosed, which dealt with a library association created by a county government to operate a library. In the ruling, the library association, pursuant to an agreement with the county, was authorized as an agent for the county and made purchases in the name of the county library paid out of county funds. The library association was entitled to the government exemption because its agency relationship with the county allowed it to make purchases on behalf of the county and, in effect, bind the credit of the county. The situation in the ruling differs from the instant case because the Taxpayer did not make its purchases using airport or government funds and was not authorized to bind the credit of its member airports or the governments operating such airports.
In accordance with the determination in this letter, the assessment is upheld with one exception. The department will remove the invoice for membership dues. The Taxpayer will receive an adjusted bill with interest accrued through the date of the letter of protest. If you have questions concerning this determination, you may contact **** at********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10340J
Rulings of the Tax Commissioner