Tax Type
Retail Sales and Use Tax
Description
Exempt Organizations
Topic
Taxpayers
Date Issued
09-28-1999
September 28, 1999
Re: Request for Ruling: Retail Sales and Use Tax
Dear
This will reply to your letter of September 2, 1999 in which you request a ruling on behalf of your client, ***** (the "Taxpayer'), regarding the application of the retail sales and use tax to certain transactions involving nonprofit elementary and secondary schools.
FACTS
Traditionally, the Taxpayer has printed and sold yearbooks directly to nonprofit elementary and secondary schools in Virginia. The schools were responsible for the sale of the yearbooks directly to the students at a price determined by the schools. The Taxpayer is now offering an alternative marketing program to the schools, Direct Solutions Program. Under this program the Taxpayer, working with a third party provider, will process orders and collect payments for the yearbook sales made by the school to its students.
Under the Direct Solutions Program, schools will enter into two contracts with the Taxpayer, the "Publication Agreement' and "Service Contract.' The Publication Agreement is the contract between the Taxpayer and the schools for the purchase of yearbooks by the school. The Publication Agreement indicates the quantity, wholesale price, and specification for the yearbook printed. This agreement is entered into with all schools, regardless of whether or not the school participates in the Direct Solutions program.
Under the Direct Solutions Program, schools also enter into a Service Contract with the Taxpayer. Under the Service Contract, the Taxpayer and other third parties under contract with the Taxpayer will act on behalf of the schools to solicit sales, process orders, and collect payments from students. The price of the yearbook is determined by the school and may be greater than, less than, or equal to the cost of the yearbooks to the school under the Publication Agreement. In other words, the school may or may not derive any proceeds from the sale. The school agrees to pay the Taxpayer a service fee for order processing and payment collections. The Taxpayer deposits all payments in a school specific account and the amount collected will be applied to reduce the school's obligation under the Publication Agreement.
The Taxpayer is requesting a ruling as to the tax application to the sale of yearbooks to schools under both the traditional marketing program (Publication Agreement only) and the Direct Solutions Program (Publication Agreement and Service Contract).
DETERMINATION
Code of Virginia Sec. 58.1-609.4(8) provides a retail sales and use tax exemption for purchases by nonprofit elementary and secondary schools and states, in part, the following:
In both marketing programs outlined above, the Taxpayer is selling yearbooks to nonprofit schools for resale. Under the Direct Solutions Program, the Taxpayer also enters into a Service Contract in which the Taxpayer handles the solicitation of sales, processing of orders, and collection of payments. Based on the reading of the exemption set forth above, purchases of tangible personal property by nonprofit schools for fundraising activities will be exempt provided the net proceeds go directly to the school. The question posed by the Taxpayer is does this exemption apply when the nonprofit school does not realize any proceeds from the sale of yearbooks?
Based on a reading of the above exemption, it is the department's position that the above exemption is applicable under both marketing plans, whether the nonprofit school realizes any profit in the form of net proceeds. This position is supported by Public Document (P.D.) 88-92 (5/10/88), copy enclosed. In P.D. 88-92, the sale of school yearbooks did not meet the publishing cost and therefore the school engaged in other fund-raising activities to supplement the cost. In this situation, the department allowed a refund of sales tax paid on purchase of the yearbooks from the publisher.
It should be noted that in order to make tax exempt sales of yearbooks to nonprofit schools under either marketing program, the Taxpayer must receive a valid and complete certificate of exemption, Form ST-13, from the school citing the fund raising exemption.
If you should have any questions, please contact ***** Office of Tax Policy, at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Re: Request for Ruling: Retail Sales and Use Tax
Dear
This will reply to your letter of September 2, 1999 in which you request a ruling on behalf of your client, ***** (the "Taxpayer'), regarding the application of the retail sales and use tax to certain transactions involving nonprofit elementary and secondary schools.
FACTS
Traditionally, the Taxpayer has printed and sold yearbooks directly to nonprofit elementary and secondary schools in Virginia. The schools were responsible for the sale of the yearbooks directly to the students at a price determined by the schools. The Taxpayer is now offering an alternative marketing program to the schools, Direct Solutions Program. Under this program the Taxpayer, working with a third party provider, will process orders and collect payments for the yearbook sales made by the school to its students.
Under the Direct Solutions Program, schools will enter into two contracts with the Taxpayer, the "Publication Agreement' and "Service Contract.' The Publication Agreement is the contract between the Taxpayer and the schools for the purchase of yearbooks by the school. The Publication Agreement indicates the quantity, wholesale price, and specification for the yearbook printed. This agreement is entered into with all schools, regardless of whether or not the school participates in the Direct Solutions program.
Under the Direct Solutions Program, schools also enter into a Service Contract with the Taxpayer. Under the Service Contract, the Taxpayer and other third parties under contract with the Taxpayer will act on behalf of the schools to solicit sales, process orders, and collect payments from students. The price of the yearbook is determined by the school and may be greater than, less than, or equal to the cost of the yearbooks to the school under the Publication Agreement. In other words, the school may or may not derive any proceeds from the sale. The school agrees to pay the Taxpayer a service fee for order processing and payment collections. The Taxpayer deposits all payments in a school specific account and the amount collected will be applied to reduce the school's obligation under the Publication Agreement.
The Taxpayer is requesting a ruling as to the tax application to the sale of yearbooks to schools under both the traditional marketing program (Publication Agreement only) and the Direct Solutions Program (Publication Agreement and Service Contract).
DETERMINATION
Code of Virginia Sec. 58.1-609.4(8) provides a retail sales and use tax exemption for purchases by nonprofit elementary and secondary schools and states, in part, the following:
-
- Tangible personal property purchased for use, consumption, or sale at retail by a nonprofit elementary or secondary school ... for use in fund-raising activities, the net proceeds (gross receipts less direct expenses) of which are contributed directly to the school or used to purchase certified school equipment, and certified school equipment purchased by such groups for contribution directly to the school.
In both marketing programs outlined above, the Taxpayer is selling yearbooks to nonprofit schools for resale. Under the Direct Solutions Program, the Taxpayer also enters into a Service Contract in which the Taxpayer handles the solicitation of sales, processing of orders, and collection of payments. Based on the reading of the exemption set forth above, purchases of tangible personal property by nonprofit schools for fundraising activities will be exempt provided the net proceeds go directly to the school. The question posed by the Taxpayer is does this exemption apply when the nonprofit school does not realize any proceeds from the sale of yearbooks?
Based on a reading of the above exemption, it is the department's position that the above exemption is applicable under both marketing plans, whether the nonprofit school realizes any profit in the form of net proceeds. This position is supported by Public Document (P.D.) 88-92 (5/10/88), copy enclosed. In P.D. 88-92, the sale of school yearbooks did not meet the publishing cost and therefore the school engaged in other fund-raising activities to supplement the cost. In this situation, the department allowed a refund of sales tax paid on purchase of the yearbooks from the publisher.
It should be noted that in order to make tax exempt sales of yearbooks to nonprofit schools under either marketing program, the Taxpayer must receive a valid and complete certificate of exemption, Form ST-13, from the school citing the fund raising exemption.
If you should have any questions, please contact ***** Office of Tax Policy, at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner