Did owning no taxable property prevent a charity from meeting the welfare-exemption condition for California's charitable-sales exemption?

Plain-English summary

Owning no taxable property did not automatically prevent a charitable organization from satisfying the welfare-exemption condition in section 6375. The organization still had to be the kind that would qualify for the property-tax welfare exemption if it did own property.

The staff letter concluded that the organization appeared not to meet that hypothetical test because its primary activity was fundraising. Its cookbook and arts-and-crafts sales to the general public raised funds rather than assisting financially distressed purchasers, and property it bought for donation to needy people remained subject to sales or use tax.

The letter invited the organization to submit supporting documentation if it believed it would qualify for the welfare exemption.

Common questions

Was actual ownership of exemptible property required?

No. The letter relied on Good Shepherd Lutheran Home for the point that having no taxable property was not itself disqualifying.

Did federal section 501(c)(3) status establish the California exemption?

No. The letter separately analyzed California's section 6375 and welfare-exemption conditions.

Why did the organization appear ineligible?

Its primary activity was fundraising rather than a qualifying use that would receive the property-tax welfare exemption.

Citations and references

• California Revenue and Taxation Code section 6375 — charitable-sales exemption analyzed
• California Revenue and Taxation Code section 214 — welfare property-tax exemption discussed
• California Revenue and Taxation Code section 6051 and Civil Code section 1656.1 — general tax and reimbursement rules stated
• Good Shepherd Lutheran Home v. State Board of Equalization (1983) 139 Cal.App.3d 876 — no-property principle cited
• Cedars of Lebanon Hospital v. County of Los Angeles (1950) 35 Cal.2d 729 — fundraising-use limitation cited

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/165-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/165-0601.pdf

Original ruling text

165.0601
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
916-327-3400

May 30, 1990
REDACTED TEXT
Re:

REDACTED TEXT

Dear REDACTED TEXT:
I am writing in response to your April 6, 1990 letter to Randy Rose, Assistant to Board Member Ernest J. Dronenburg, Jr., inquiring as to whether REDACTED TEXT is exempted “from paying California sales and use tax on items which are purchased for donation to the needy.” According to your letter and the supplementary materials enclosed, REDACTED TEXT is a philanthropic organization which provides confidential assistance to needy persons. REDACTED TEXT purchases items such as clothing, groceries, toiletries, etc. for distribution to financially distressed individuals. REDACTED TEXT is exempt from federal income tax under the provisions of Internal Revenue Code Section 501(c)(3). REDACTED TEXT has registered with the Board for a seller’s permit. According to our records, REDACTED TEXT sells cookbooks and arts and crafts for which it pays California sales tax. REDACTED TEXT is staffed solely by volunteers and owns no property. Unless specifically excluded or exempted from taxation by statute, all retail sales or purchases for use within this state of tangible personal property are subject to either sales or use tax. (Rev. & Tax. Code § 6051.) Although the legal obligation to pay sales tax is on the retailer, Civil Code Section 1656.1 provides that the retailer may seek sales tax reimbursement from the purchaser. Revenue and Taxation Code Section 6375 was amended, operative January 1, 1990, and currently provides as follows: “There are exempted from the taxes imposed by this part the gross receipts from the sale of and the storage, use, or other consumption in this state of, tangible personal property made, prepared, assembled, or manufactured by organizations formed and operated for charitable purposes qualify for the exemption provided by Section 2174 known as the ‘welfare exemption,’ which are engaged in the relief of poverty and distress, and make the sales and donations as a matter of assistance to the purchasers and donees.”

As I understand it, sales by REDACTED TEXT of cookbooks and arts and crafts would not qualify for the sales tax exemption because such sales are made to the general public to raise funds and not exclusively to financially distressed purchasers. Thus, REDACTED TEXT is correct in reporting and paying tax on these sales. Property purchased by REDACTED TEXT and donated to the needy is also subject to sales or use tax. It appears that REDACTED TEXT does not qualify for the “Welfare exemption” from property taxation provided by Revenue and Taxation Code Section 214. The fact that a charitable organization owns no taxable property on which it could claim “welfare exemption,” does not bar the organization from otherwise qualifying for the sales and use tax exemption provided by Revenue and Taxation Code Section 6375. (Good Shepherd Lutheran Home v. State Board of Equalization (1983) 139 Cal.App.3d 876.) However, the organization must be one which would qualify for the exemption if it did own property. Organizations such as REDACTED TEXT, whose primary activity is fundraising, would not qualify for the “welfare exemption” from property tax. (Cedars of Lebanon Hospital v. County of Los Angeles (1950) 35 Cal.2d 729.) If you believe that REDACTED TEXT would qualify for the “welfare exemption” from property tax, please submit supporting documentation and we will reconsider the issue. I hope this letter clarifies REDACTED TEXT’s sales and use tax obligations. Please feel free to contact me if you have further questions. Sincerely, Stella Levy Tax Counsel SL:cl bc:

Torrance District Administrator
Mr. Randall Rose