Tax Type
Retail Sales and Use Tax
Description
Nonprofit organizations, private schools, and churches; Organization providing employment services to handicapped.
Topic
Taxability of Persons and Transactions
Date Issued
10-09-1997
October 9, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your letter in which you seek correction of an assessment issued to******* (the "Taxpayer") for the period January 1994 through December 1996. I
apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a nonprofit organization that is exempt from federal taxation under § 501(c)(3) of the Internal Revenue Code. The Taxpayer primarily provides employment services to persons with disabilities and contracts with the Federal government to provide these services under the Javits-Wagner-O'Day Act. The Taxpayer states that it provides employment and rehabilitative services to disabled employees and that 75 percent of the direct labor pool for these projects must be persons with severe disabilities.
The Taxpayer was audited and assessed use tax on purchases of expense items and fixed assets. The Taxpayer maintains that the assessment is erroneous because it qualifies for the exemption from sales and use tax found in Code of Virginia § 58.1-609.4(3).
DETERMINATION
There is no general exemption from the retail sales and use tax for nonprofit organizations as the enclosed copy of Title 23 of the Virginia Administrative Code (VAC) 10-210-1070 explains. 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.
Code of Virginia § 58.1-609.4(3) provides an exemption for "[t]angible personal property purchased by an organization exempt from taxation under § 501 (c) (3) of the Internal Revenue Code and organized exclusively for the purpose of providing education, training and services to retarded citizens of the Commonwealth, provided that such property is used exclusively for the purpose set forth herein and that such organization receives more than fifty percent of its total funding from federal, state, or local governments". (Emphasis added).
Based on the information presented, the Taxpayer is not organized exclusively for the purpose required by the exemption. The auditor also indicates that the Taxpayer does not receive more than fifty percent of its funding from federal, state, or local governments. A large portion of its revenue is earned from a janitorial contract with the federal government and from a mailing house operation.
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. The audit assessment was proper. The Taxpayer should pay sales tax to its vendors on all purchases of tangible personal property. If a vendor does not collect the tax, the Taxpayer must report and pay use tax on a Consumer's Use Tax Return, Form ST-7.
I will allow the Taxpayer sixty days to pay the current balance of before interest accrues on the outstanding balance. You may send your payment to in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218--1880. If you have any questions, please contact ***** at**********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12450S
Rulings of the Tax Commissioner