Could an exempt religious organization treat a requested payment for property as a donation rather than a sale?

Plain-English summary

These combined August and October 1986 letters addressed an exempt religious organization's transfers of property for “requested donations.” Texas treated a donation as a gift: if the organization did not freely give the item away, exchanging it for money was a sale. Paying more or less than the suggested amount did not turn the transaction into a donation. The entire payment was taxable or nontaxable according to the underlying transaction.

The earlier letter said sales of books consisting wholly of writings sacred to a faith, qualifying religious periodicals, and audio-electronic transcriptions of that material were exempt. That exemption did not extend to sheet music or films; the follow-up clarified that “films” included videotapes and “sheet music” included booklets of original compositions. Other tangible personal property was taxable, and an organization making those sales needed a sales-tax permit.

An exempt religious organization could give its supplier an exemption certificate when buying items consistent with its exempt purpose. The letter also said bringing such qualifying items into Texas from out of state did not incur use tax.

Common questions

Did calling a payment a requested donation make it a gift? No.

What if a person paid a different amount than requested? That did not change the transaction from a sale to a donation.

Were all items sold by the religious organization taxable? No. The letters described exemptions for specified sacred books, religious periodicals, and audio-electronic transcriptions, but not sheet music, films, or other tangible personal property.

Could the organization use an exemption certificate for its own purchases? Yes, for items in keeping with its exempt purpose.

Citations and references

• Bullock v. National Bankshares Corporation
• 34 Tex. Admin. Code Rules 3.285, 3.287, 3.293, 3.299, and 3.322 were enclosed with the August 18 letter; the ruling text does not assign a particular proposition to each rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8610L0765B05

Original ruling text

October 13, 1986

Dear ***:

Thank you for your follow-up letter. There is no objection to the term
requested donation except that it is very close to a contradiction in
terms. As I stated in my earlier letter, the word "donation" is defined
as a gift.

It is our policy that if an individual gives a suggested amount to
receive an item, neither party gave a gift. However as you know, a church
may sell certain items tax free. We do not consider requiring an
organization to charge tax to be an undue burden on commerce or religion.

To answer your first question, if the organization does not "freely give"
the items away, the exchange of funds will be considered a sale and not a
donation. The fact that an individual gives a different amount will not
change the status to a donation. The entire amount would be taxable or
not taxable depending on the transaction itself.

In Bullock v. National Bankshares Corporation, the Judge stated,

"Statutory exemptions from taxation are subject to strict construction
since they are the antithesis of equality and uniformity and because
they place a greater burden on other taxpaying business and individuals.
(Citing cases). An exemption cannot be raised by implication, but must
affirmatively appear, and all doubts are resolved in favor of the
taxing authority and against the claimant. Simply stated, the burden
of proof is on the claimant to clearly show that it comes within the
statutory exemption."

In response to the second part of your letter, the term films includes
video tapes and the term sheet music extends to booklets of original
compositions.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write us at the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division

August 18, 1986

Dear ***:

Thank you for your recent letter regarding certain activities by an IRS
designated 501(C)(3) organization assuming they are also designated by
the Comptroller's Office as an exempt religious organization.

The word donation is defined in Webster's New Collegiate Dictionary as a
"gift". When you use terms like "requested donation" value in connection
with a transfer of personal property, the transaction becomes a sale.

The receipts from the sale or use in this state of books consisting
wholly of writings sacred to any religious faith, and religious
periodicals published or distributed by any religious faith consisting
wholly of writings promulgating the teaching of such faith, or
audio-electronic transcriptions of this material are exempt from the sales
tax. The exemption for publications and books sacred to a particular faith
does not extend to sheet music and films. Sales of other tangible personal
property are taxable. If the organization is making such sales, they would
be required to take out a sales tax permit.

When an exempt religious organization purchases items that are in keeping
with its exempt purpose they may give their supplier an exemption
certificate in lieu of tax. If they buy the items out of state and
bring them into Texas they will not incur use tax.

I am enclosing Rules 3.285, 3.287, 3.293, 3.299 and 3.322, along with a
copy of the Statute for your reference.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write us at the Tax Administration Division.

Sincerely,

Tax Administration Division