05-4 | Virginia Tax

Bulletin Number

VTB 05-4

Tax Type

Retail Sales and Use Tax

Description

Exemption Eligibility Expanded – For Nonprofit Organizations

Topic

New Procedure(s)

Date Issued

04-13-2005

RETAIL SALES AND USE TAX EXEMPTIONS:

Exemption Eligibility Expanded – For Nonprofit Organizations

Pursuant to legislation enacted by the 2003 General Assembly (2003 Acts cc. 757, 758), effective July 1, 2004, the Department of Taxation implemented a new process by which nonprofit organizations obtain sales and use tax exemptions. Nonprofit organizations no longer are required to seek new sales and use tax exemptions through the legislature. This new process is available to be used by nonprofit organizations and churches that already have an exemption certificate and those nonprofit organizations and churches that are seeking an exemption for the first time.

The Department’s Nonprofit Online process is a quick, efficient and secure way for nonprofit organizations to apply for, and print their Virginia sales and use tax exemption certificates. It allows organizations to access certain registration information as it changes, as well as reprint lost exemption certificates online.

This Tax Bulletin explains the new exemption process, including changes enacted by the 2004 and the 2005 General Assemblies.

Currently Exempt Organizations

Any nonprofit organization that held a valid exemption certificate issued by the Department of Taxation, or any nonprofit church that held a valid self-issued certificate (Form ST-13A) on June 30, 2003, retains their exemption until the current exemption expires. Organizations must reapply for an exemption under the new process when their exemption certificate expires. The following expiration schedule is applicable to nonprofit organizations that held an exemption on June 30, 2003. All statutory references are to the law as it existed on June 30, 2003.

Civic and community service (first half) § 58.1-609.8 (1 through 92)	July 1, 2004
Civic and community service (second half) § 58.1-609.8 (93 through 219)	July 1, 2005
Cultural ( § 58.1-609.9) and Miscellaneous § 58.1-609.10)	July 1, 2006
Educational ( § 58.1-609.4)	July 1, 2007
Medical-Related ( § 58.1-609.7)	July 1, 2008

New Exemption Criteria:

The law provides that in order to qualify for an exemption, a nonprofit organization must meet all of the applicable criteria below:

1. The entity must be exempt from federal income taxation under either §§ 501(c)(3) or 501(c)(4) of the IRC. Alternatively, the entity may qualify if it has annual gross receipts of less than $5,000 and is organized for at least one of the purposes set forth in IRC §§ 501 (c)(3) or (c)(4).
2. The entity must provide proof of compliance with Chapter 5 of Title 57 (relating to solicitation of contributions) of the Code of Virginia for organizations subject to it.
3. The entity’s general administrative expenses, including salaries and fundraising expenses, may not be greater than 40 percent of its annual gross revenue, under generally accepted accounting principles (GAAP).

4. Entities with annual gross revenue of $250,000 or greater in the previous year, must provide a copy of their financial audit performed by an independent certified public accountant.
5. Entities required to file federal Form 990 or 990 EZ must provide a copy of such form to the Department of Taxation.
6. Entities, not required to file Form 990 or 990 EZ, must provide the following:
- A list of the Board of Directors, or other responsible agents of the entity composed of at least two individuals, with name addresses where the individuals can be found.
  Location where the financial records of the entity are available for public inspection.

2004 and 2005 Legislative Changes

Since the enactment of the new exemption process, the General Assembly has made several technical changes:

1. Nonprofit churches may continue to use a self-issued exemption certificate, Form ST-13A. Churches using the self-issued exemption certificate will be entitled to the sales and use tax exemption available under the law, as it existed on June 30, 2003. Title 23 of the Virginia Administrative Code (VAC) 10-210-310 provides an illustrative listing of taxable and exempt purchases for nonprofit churches using Form ST-13A. The exemption also includes, church bulletins, programs, newspapers, and newsletters distributed outside the church, gifts distributed outside the church, baptisteries, food, disposable serving items, cleaning supplies, teaching materials used in the operation of a camp or conference center which are used in carrying out the work of the church. A nonprofit church electing to use Form ST-13A, may not purchase construction and building materials exempt of the tax. Nonprofit churches applying under the new process, if approved, will receive a tax-exempt number and may enjoy a broader exemption.

2. Nonprofit organizations that provide rescue or firefighting services but do not have a federal income tax exemption under IRC §§ 501(c)(3) or (c)(4) are eligible to obtain an exemption under the new process for the period July 1, 2004 through July 1, 2006.

3. Any nonprofit organization granted an exemption by the Department of Taxation from paying sales and use tax shall be exempt from collecting sales tax if (i) the organization is within the same class of organization of any entity exempt from collecting sales and use tax on June 30, 2003, or (ii) the entity is organized exclusively to foster and sponsor, and promote physical education, athletic programs, and contest for youths in the Commonwealth.

4. The Department of Taxation is authorized to refuse to grant exemption certificates to nonprofit organizations that fail to disclose their total taxable purchases of tangible personal property for the preceding year.
5. Certain nonprofit organizations, exempt from paying sales tax on taxable services as of June 30, 2003, may continue to make purchases of taxable services exempt of the tax.

Failure to Comply with Exemption Criteria

The duration of each exemption granted by the Department of Taxation shall be no less than five years and no greater that seven years. The law provides that failure of an organization to maintain compliance with the applicable criteria set forth under Code of Virginia § 58.1-609.11 constitutes grounds for revocation of the exemption by the Department of Taxation.

How to Apply

A nonprofit organization may apply on-line to request a sales and use tax exemption or may complete a paper application and submit it to the Department of Taxation, Nonprofit Exemption Unit, Post Office Box 27125, Richmond, Virginia 23261-7125. Please access our web site at http://www.tax.virginia.gov/nonprofit for additional information on how to apply or to download forms and instructions. If you have any questions concerning the new filing requirement or related issues, please contact the Department's Office of Customer Services, Nonprofit Exemption Unit at (804) 377-3712.

Tax Bulletins