Can a 501(c)(3) university get a sales tax refund on purchases its employees make and then get reimbursed for?

Plain-English summary

A 501(c)(3) university with its own Utah sales tax exemption number asked whether it could recover, via the TC-62N refund coupon, sales tax that its employees paid out of pocket on purchases made on the university's behalf and later reimbursed. The Commission said no — and used the ruling to lay out a fuller framework for charitable-institution purchases made through other people.

Statutory language controls the result. Utah Code Ann. § 59-12-104(8) and § 59-12-104.1(2) exempt sales "made to" a religious or charitable institution. The Commission read that phrase literally: when an employee pays a vendor with personal funds, the sale is legally made to the employee, not to the institution — regardless of whether the university later reimburses the employee or the purchase was genuinely for university purposes.

Rule 58 confirms this for tangible personal property that stays personal property. Citing its own prior rulings (PLR 01-028, PLR 01-004, PLR 04-022), the Commission explained that a purchase of tangible personal property qualifies as exempt only if either (a) it's later converted into real property owned by the institution, or (b) the institution pays the vendor directly. An employee's reimbursed purchase satisfies neither.

But charitable-organization volunteers get a different result. The Commission drew a sharp, deliberate line: it does allow sales tax refunds when a charitable organization's volunteers pay and are later reimbursed, reasoning that charitable organizations typically lack the financial and organizational controls to hand volunteers direct access to organizational funds, and shouldn't have their charitable mission "thwarted because of financial inconveniences involving volunteers." Employees are different — the organization can and should simply give employees direct access to organizational funds when needed, so there's no policy reason to extend the same accommodation.

Governmental entities' volunteers get neither. The Commission also noted the refund provision (§ 59-12-104.1(3)(a)) exists only in the charitable-institution exemption statute, not in the parallel governmental-entity exemption (§ 59-12-104(2)) — so volunteers of governmental entities can't get sales tax refunds under this framework at all, unlike volunteers of charitable organizations.

What this means for you

Universities, churches, and other 501(c)(3) organizations

Structure purchasing so the organization pays vendors directly (a corporate card, a purchase order, direct invoicing) rather than reimbursing employees after the fact — reimbursed employee purchases cannot be refunded, no matter how clearly the purchase was for the organization's charitable purpose.

Charitable organizations that rely heavily on volunteers

Unlike employee reimbursements, sales tax paid by volunteers who are later reimbursed by the organization CAN be recovered through the § 59-12-104.1(3) refund process — as long as the purchase was made in the conduct of the organization's regular charitable or religious functions.

Governmental entities relying on volunteers

Don't assume the charitable-institution volunteer-refund accommodation extends to you — the Commission found no statutory basis for refunding sales tax paid by volunteers of governmental entities.

Accountants and tax professionals

The controlling distinction is financial control, not who benefits from the purchase: employees are presumed to be fundable directly by the organization, so no accommodation exists for them; volunteers are presumed not to have that kind of access, so a refund mechanism fills the gap. Apply Rule 58's direct-payment-or-converted-to-realty test to any purchase made through an intermediary.

Common questions

Q: Our employee bought supplies for our charity and we reimbursed them — can we get the sales tax back?
A: No. Only purchases the organization pays for directly (or that become real property the organization owns) qualify for the exemption or refund.

Q: What if a volunteer, not an employee, made the same purchase and we reimbursed them?
A: That case is different — Utah allows a sales tax refund for taxes paid by volunteers of charitable organizations who are later reimbursed, as long as the purchase was made in the conduct of the organization's regular charitable/religious activities.

Q: Does this ruling apply to purchases made by volunteers of a government agency?
A: No — the Commission found the refund mechanism only exists in the charitable-institution exemption statute, not in the parallel exemption for governmental entities.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-104(8) (charitable institution exemption)
• Utah Code Ann. § 59-12-104.1(2) (exemption for sales "made to" the institution)
• Utah Code Ann. § 59-12-104.1(3) (refund process)
• Utah Code Ann. § 59-12-104(2) (governmental entity exemption — no parallel refund provision)
• Utah Admin. Code R865-19S-58 (Rule 58 — purchases on behalf of a charitable institution)
• Utah Admin. Code R865-19S-100 (refund procedures)

Prior Commission rulings cited:

• PLR 01-028 (equipment purchased by a for-profit company on behalf of a 501(c)(3))
• PLR 01-004 and PLR 04-022 (construction materials purchased for charitable organizations)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/08-014.pdf

Original ruling text

FINAL PRIVATE LETTER RULING

                                  REQUEST LETTER

08-014

UNIVERSITY
NAME
ADDRESS

October 29, 2008

To Whom It May Concern:

UNIVERSITY is requesting clarification of the tax code section 59-12-104.1 which states that a
501(c)(3) organization is able to purchase goods tax exempt by submitting a TC-62N coupon for
taxes that were paid at the point of purchase.

We have spoken with an auditor within the auditing division of the Utah State Tax Commission.
We found that it is not clear if sales tax included in reimbursements made to employees, who
have purchased goods on behalf of a 501(c)(3) organization, can be recovered by submitting the
TC-62N coupon. It is UNIVERSITY’S desire to recover this sales tax utilizing the TC-62N
coupon.

UNIVERSITY would like a Private Letter Ruling that clarifies if sales tax reimbursements to
employees, who have purchased goods for the University, can be recovered from the Utah State
Tax Commission by the University submitting the TC-62N coupon. If not, what process is in
place to recover the sales tax inadvertently paid by employees when using their own funds to
make purchases on behalf of the 501(c)(3) organization?

If you have questions or need clarification of the University’s inquiry, please contact 2 ND NAME
at ######.

Please send the Private Letter Ruling back to the address that is listed on the letterhead. Your
time concerning this matter is greatly appreciated.

Sincerely,

NAME
UNIVERISTY

Page 2

                                 RESPONSE LETTER

                                         April 7, 2009

NAME
UNIVERSITY

RE: Private Letter Ruling Request—Whether a 501(c)(3) University Can Recover Sales Tax
Paid by Employees Who are Reimbursed for Goods Purchased for the University.

Dear Mr. NAME:

    You had requested a ruling as to whether UNIVERSITY, as a 501(c)(3) organization, can

recover from the Tax Commission sales tax reimbursements to employees who purchased goods
for the University. For purposes of this response, we note that the University has applied for and
received a Utah sales tax exemption number as a 501(c)(3) organization. Your specific request is
whether a 501(c)(3) organization may obtain refunds of sales taxes paid on purchases made by its
employees. You ask if the refund claim can be made by submitting the TC-62N form (Utah
Sales Tax Refund Request). You also inquire, if the response is “no,” whether a mechanism is
available to get refunds for purchases made by employees who inadvertently pay the sales tax.

I. Applicable Law

   Utah Code Ann. § 59-12-104 provides:

   The following sales and uses are exempt from the taxes imposed by this chapter:
   (8)    sales made to or by religious or charitable institutions in the conduct of
          their regular religious or charitable functions and activities, if the
          requirements of Section 59-12-104.1 are fulfilled . . .
   (Emphasis added.)

   Utah Code Ann. § 59-12-104.1 in pertinent part states:

    (2)    (a)    Except as provided in Section 59-12-104, sales made to a religious
                  or charitable institution or organization are exempt from the sales
                  and use tax imposed by this chapter if the sale is made in the
                  conduct of the institution's or organization's regular religious or
                  charitable functions and activities.
           (b)    In order to facilitate the efficient administration of the exemption
                  granted by this section, the exemption shall be administered as
                  follows:
                  (i)     the exemption shall be at point of sale if the sale is in the
                          amount of at least $1,000;

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                  (ii)  except as provided in Subsection (2)(b)(iii), if the sale is
                        less than $1,000, the exemption shall be in the form of a
                        refund of sales or use taxes paid at the point of sale; and
                (iii)   notwithstanding Subsection (2)(b)(ii), the exemption under
                        this section shall be at point of sale if the sale is:
                        (A)     made pursuant to a contract between the seller and
                                the charitable or religious institution or
                                organization; or
                        (B)     made by a public utility, as defined in Section 54-2-
                                1, to a religious or charitable institution or
                                organization.
   (3)  (a)     Religious or charitable institutions or organizations entitled to a
                refund under Subsection (2)(b)(ii) may apply to the commission
                for the refund of sales or use taxes paid.
         (b)    The commission shall designate the following by commission rule
                adopted in accordance with Title 63G, Chapter 3, Utah
                Administrative Rulemaking Act:
                (i)     procedures for applying for a sales and use tax refund;
                (ii)    standards for determining and verifying the amount of
                        purchase at the point of sale;
                (iii)   procedures for submitting a request for refund on a monthly
                        basis anytime the taxpayer has accumulated $100 or more
                        in sales tax payments; and
                (iv)    procedures for submitting a request for refund on a
                        quarterly basis for any cumulative amount of sales tax
                        payments.
   (Emphasis added.)

   In conjunction with § 59-12-104.1(3)(b), the Commission adopted Utah Admin. Code

R865-19S-100 titled, “Procedures for Exemption From and Refund of Sales and Use Taxes Paid
by Religious and Charitable Institutions Pursuant to Utah Code Ann. Section 59-12-104.1.” The
Commission also provided Form TC-62N, titled “Sales Tax Refund Booklet for Religious or
Charitable Organizations.”

  Sales to religious or charitable institutions are also discussed in Utah Admin. Code R865-

19S-58 (“Rule 58”); Subsection (2) of Rule 58 provides in part:

    (c)   Sales of construction materials or fixtures made to religious or charitable
          institutions are exempt only if the items are sold as tangible personal
          property.

    (d)   Sales of [construction] materials are considered made to religious or
          charitable institutions and, therefore, exempt from sales tax, if:
          (i)     the religious or charitable institution makes payment for the
                  materials directly to the vendor; or

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           (ii)    (A)     the materials are purchased on behalf of the religious or
                           charitable institution.
                   (B)     Materials are purchased on behalf of the religious or
                           charitable institution if the materials are clearly identified
                           and segregated and installed or converted to real property
                           owned by the religious or charitable institution.

    (e)    Purchases not made pursuant to Subsection (2)(d) are assumed to have
           been made by the contractor and are subject to sales tax.

(Emphasis added.)

II. Analysis

   A. Statutes

     Section 59-12-104(8) specifically exempts “sales made to or by religious or charitable

institutions in the conduct of their regular religious or charitable functions and activities.”
Section 59-12-104.1(2) reiterates that “sales made to a religious or charitable institution or
organization are exempt from the sales and use tax imposed by this chapter if the sale is made in
the conduct of the institution's or organization's regular religious or charitable functions and
activities.” In the current situation, the issue is whether a sale made to an employee of a
charitable (we mean charitable to include religious) institution qualifies as an exempt sale “made
to” the institution when the employee directly pays the vendor.

   B. Prior Private Letter Rulings

   Several Private Letter Rulings (“PLR’s”) address the treatment of purchases made to or

on behalf of a religious or charitable institution. These rulings, PLR 01-028, PLR 01-004, and
PLR 04-022, deal with purchases of tangible personal property by charitable organizations.

    Of the three PLR’s, PLR 01-028 compares most directly with the current situation. It

addressed in part the purchase of equipment by a for-profit company on behalf of a 501(c)(3)
organization. The Commission applied Rule 58 to that situation. Although Rule 58 primarily
deals with sales of personal property to real property contractors, it does address purchases of
tangible personal property that are not converted to real property. That rule was applied because
then, as is now the case, there is “no current statute or rule [that] specifically addresses only the
purchase of tangible personal property on behalf of a charitable institution.” See PLR 01-028.

     Under PLR 01-028, all purchases of tangible personal property must meet the

requirements of Rule 58 to be exempt. A purchase of tangible personal property that remains
tangible personal property does not comply with Rule 58(2)(d)(ii) (prior version at Rule 58(B)(4)
(b)(i)) because the property is never converted to real property as required. Therefore, a
purchase of tangible personal property that remains tangible personal property can only comply
with Rule 58 when “the . . . institution makes payment . . . directly to the vendor,” under Rule
58(2)(d)(i). As we stated in PLR 01-028 “[w]hile the rule contemplates the purchase of tangible

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personal property that is installed to real property, the Commission will also consider the
purchase of tangible personal property that remains tangible personal property to be exempt
when made on behalf of a charitable institution, but only if that institution makes payment
directly to the vendor.” Otherwise the charitable institution may only purchase tangible personal
property tax-free if the institution pays the seller directly, as we indicated in PLR 01-028.

    Although not directly on point, PLR’s 01-004 and 04-022 also address whether purchases

of tangible personal property are exempt. They differ from PLR 01-028, in that they deal
specifically with construction materials. Consistent with PLR 01-028, these rulings require that
the charitable organizations make exempt purchases of tangible personal property directly if that
property is not converted into real property owned by the organizations.

   C. Sales Tax Refunds on Purchases Made by Charitable Organizations and
      Governmental Entities

    In considering the language of §§ 59-12-104 and 59-12-104.1, the Commission has

consistently interpreted those statutes to permit refunds of taxes on reimbursements for purchases
made by volunteers of charitable or religious organizations only—not for purchases by
volunteers of other organizations or by employees of any organization. This is a principled
distinction. In the case of employees of governmental or charitable organizations, the
Commission finds that such organization has sufficient control over its employees to entrust its
funds to the employees when the organization determines such entrustment is needed and
appropriate. Accordingly, purchases made by an organization are exempt only when the
purchases are made directly from the organization’s funds.

    In contrast, the Commission finds that a charitable organization does not have sufficient

financial and organizational controls to allow the volunteers direct access to the organization’s
funds. At the same time, we hold that the charitable purposes of a charitable organization should
not be thwarted because of financial inconveniences involving volunteers. Thus, the
Commission has permitted sales tax refunds for purchases made by volunteers of charitable
organizations when the taxes are reimbursed by the organizations. We find that the refund
provisions under § 59-12-104.1(3)(a) permit refunds under this circumstance. Accordingly,
charitable organizations may request a sales tax refund though the refund process permitted
under § 59-12-104.1(2)-(3) for taxes paid by volunteers of such organizations, as long as these
purchases are “made in the conduct of the institution's or organization's regular religious or
charitable functions and activities.”

     We emphasize that this refund provision does not apply to volunteers of governmental

entities. To begin, we do not find that governmental or other organizations rely upon volunteers
to the extent of charitable organizations, who are heavily dependent on volunteer work in order
to carry out their missions. Furthermore, the statutory refund provision under § 59-12-104.1(3)
(a) is absent from the exemption for government entities under § 59-12-104(2). We find no
policy purpose or statutory language to permit refunds on purchases made by volunteers of
governmental or other non-charitable entities.

Page 6

   D. Purchases Made by University Employees

    In this case, based on §§ 59-12-104(8) and 59-12-104.1, the aforementioned PLR’s, and

the Tax Commission’s statutory interpretation in similar situations, there is no basis that allows
the University to claim a refund of the sales tax paid by its employees on purchases that they
make, even if the purchases are on behalf of the University. Such sales to employees were not
“made to” a charitable institution as required statute. Neither is there any indication that the
purchases meet the requirements of Rule 58. The University did not make payment directly to
the vendor, as required by Rule 58(2)(d)(i). We assume that the tangible personal property is not
“converted to real property owned by the [University],” as required by Rule 58(2)(d)(ii)(B).
Because the purchases were not made to the University, the University cannot qualify for or file
a claim for a refund as provided in §§ 59-12-104.1(2)(b)(ii) and 59-12-104.1(3). When the
University needs to make purchases, it can authorize certain employees to make those purchases
directly with the University’s funds. The “made to” language of §§ 59-12-104(8) and 59-12-
104.1(2) requires purchases made through employees to be made directly with the University’s
funds. We find no statutory language to permit refunds on purchases made by employees of
charitable organizations.

III. Conclusion

    Based on the above analysis, the University does not qualify to recover sales tax paid by

employees who are reimbursed by the University. Our conclusions are based on the facts as
described. Should the facts be different, a different conclusion may be warranted. If you feel we
have misunderstood the facts as you have presented them, if you have additional facts that may
be relevant, or if you have any other questions, please contact us.

                                         For the Commission,



                                         Marc B. Johnson
                                         Commissioner

MBJ/aln
08-014