Does an out-of-state 501(c)(3) religious children's ministry that employs one Utah missionary and mail-orders teaching materials to Utah churches owe Utah income tax withholding or sales/use tax on those activities?

Plain-English summary

An Illinois nonprofit, tax-exempt under IRC § 501(c)(3), runs a Bible-education program for children through local Utah churches — described in the request letter as functioning "like a Christian Boy Scouts." It employs one Utah-based missionary who trains church volunteers but does not sell or deliver any products himself. Separately, the organization ships books, uniforms, game apparatus, and award materials directly to Utah churches by mail or common carrier, with all orders placed by phone, fax, or mail — the organization has no Utah office or inventory. The organization asked the Commission a batch of registration and tax questions: corporate registration, employment/withholding taxes on the missionary, sales/use tax on the shipped goods, excise/income tax, and charitable-solicitation reporting.

The Commission answered tax by tax:

• Income tax on the missionary: A Utah resident (or a nonresident with Utah-source income) who must file a federal return must also file a Utah return, so missionaries earning taxable income in Utah must file a Utah income tax return.
• Withholding: If the organization withholds federal income tax from the missionary's wages, it must also withhold Utah income tax, following the standard Utah withholding statutes and rules.
• Remittance schedule: Withheld Utah tax is generally remitted quarterly, but employers withholding $1,000 or more per month must remit monthly.
• Sales/use tax on shipped goods: Sales made for delivery to Utah customers are exempt from Utah use tax, because the organization qualifies under IRC § 501(c)(3) and the sales occur in the conduct of its regular religious or charitable activities — squarely within Utah's charitable-organization exemption.
• Charitable solicitation: The Commission couldn't rule on unemployment or workers' compensation (referring those questions to the Industrial Commission and Employment Security Office) but noted the organization may need to file with the Department of Commerce's Consumer Protection Division to solicit donations in Utah.

What this means for you

Out-of-state religious and charitable nonprofits with Utah operations

Having any Utah-based employee — even just one missionary or field worker — triggers ordinary Utah income tax withholding obligations on that employee's wages, regardless of your organization's exempt status. Tax-exempt status protects your organization's own income and sales, not your payroll withholding duties as an employer.

Nonprofits mail-ordering goods into Utah

If you're a 501(c)(3) organization and your Utah sales/shipments happen in the course of your regular religious or charitable activities (not an unrelated commercial sideline), Utah Code Ann. § 59-12-104.1 exempts those sales from use tax even without a Utah physical presence — but you still need to obtain a Utah exemption number to document the exemption.

Accountants and tax professionals

This ruling is a clean illustration of Utah's general filing-and-withholding rule under § 59-10-502 applying without modification to nonprofit employers, contrasted against the separate, narrower § 59-12-104.1 sales/use tax charitable exemption that turns on both 501(c)(3) status AND the sale being part of the org's regular charitable/religious conduct.

Common questions

Q: Does a nonprofit's 501(c)(3) status exempt its employees' wages from Utah withholding?
A: No. Withholding obligations on wages paid to a Utah employee apply the same as for any other employer.

Q: Are all sales by a 501(c)(3) organization into Utah exempt from use tax?
A: Only sales made in the conduct of the organization's regular religious or charitable activities — not unrelated commercial sales — and only if the organization qualifies under IRC § 501(c)(3).

Q: Does this ruling cover unemployment or workers' compensation questions?
A: No — the Commission does not administer those and referred the taxpayer to the Utah Industrial Commission and Employment Security Office.

Q: Can another nonprofit rely on this ruling?
A: No. It binds the Commission only for the taxpayer and facts presented; another organization must confirm its own facts against current law.

Citations and references

Statutes:

• Utah Code Ann. § 59-10-502 (Utah income tax return filing requirement)
• Utah Code Ann. §§ 59-10-402, 59-10-403 (Utah withholding provisions)
• Utah Code Ann. § 59-10-406 (remittance of withheld income tax)
• Utah Code Ann. § 59-12-104.1 (charitable/religious organization sales and use tax exemption)

Rules:

• Utah Admin. Rule R865-91-14 (withholding)
• Utah Admin. Rules R865-91-16, R865-9I-17 (withholding remittance schedule)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/95-069.htm

Original ruling text

95-069

Response
October 5, 1995

Request

State
Tax Commission.

Mr.
Val Oveson

210
North 1950 West

Salt
Lake City, Utah 84134

Dear
Mr. Oveson,

I
represent an evangelical Christian organization that recently began conducting
its religious activities in Utah. The organization is an Illinois
Not-For-Profit corporation and is recognized by the IRS to be tax-exempt under
IRC 501 (c)(3). My client employs one missionary assigned to work in Utah to
further its religious objectives. The program is to teach children about the
Bible and all activities are conducted exclusively through local churches duly
organized under the laws of Utah. The missionaries working with my client are
commissioned by local churches to service evangelistic religious purposes. They
raise their own financial support by soliciting gifts and donations from
churches and individuals in Utah. All gifts are directed to the central office
of my client for the purposes of accounting and income tax reporting.

An
important part of the religious activities involves the use of books, uniforms,
game apparatus and award paraphernalia. In this regard my client is like a
Christian Boy Scouts. This year, my client will ship by U.S. mail, UPS to local
churches tangible goods valued at approximately $$$$$. All orders for these
goods come exclusively through the mail or via telephone/fax. My client does
not have an office in Utah nor does it maintain any inventory in the state.

Missionaries
do not participate in the ordering or delivering of any of the products
described above. They serve only to educate local church volunteers, helping
them to teach children more effectively and to encourage church leaders to
attend to the spiritual needs of children in their congregation. My client is
very interested in complying fully with the laws of Utah and I wish to
determine what registrations may be required. Please answer the following
questions or refer this letter to the appropriate department.

1.
Is my client required to register as a foreign corporation conducting religious
activities in Utah?

2.
Are the missionaries operating in Utah covered by the state employment laws in
relation to income tax withholding, unemployment compensation, etc.?

3.
Are the transfers of tangible goods to local churches subject to any sales/use
taxes? If so, what are the collections and remittances.

4.
Is my client subject to state excise taxes or any other form of income
reporting?

5.
Are the charitable solicitation activities of the missionaries a subject to
regulatory or reporting requirements?

Thank
you for you attention to these matters. I would greatly value your assistance if
you could send me pertinent information about the state laws and forms required
to register and report these religious activities. If other departments of your
state government would have additional information, please forward this letter
to the appropriate person(s).

Sincerely,

XXXXX

XXXXX

RE: Advisory Opinion - Application of tax laws
to an out-of-state evangelical organization with sales and missionaries in
Utah.

Dear
XXXXX,

We
have received your request for an opinion regarding your client's evangelical
activities in Utah. In response to your tax-related questions, we find as
follows:

1.
Under section 59-10-502 of the Utah Code, every resident who is required to
file a federal income tax return for the taxable year must also file a state
income tax return. Every nonresident having federal gross income derived from
sources within Utah for the taxable year who is required to file a federal
income tax return must file a Utah income tax return. Missionaries who earn
taxable income in Utah are required to file a Utah income tax return.

2.
If your client's organization is required to withhold federal income tax from
wages paid to its Utah missionaries, it must also comply with Utah withholding
provisions. Sections 59-10-402 and 59-10-403 of the Utah Code and Utah
Administrative Rules R865-91-14 are attached for your information.

3.
Generally, Utah income tax withheld must be remitted to the Commission
quarterly on or before the last day of April, July, October and January.
However, employers withholding $1,000 per month must file monthly. Section
59-10-406 and Utah Administrative Rules R865-91-16 and R865-9I-17 are attached
to help you advise your client.

4.
With regard to sales tax, sales made by your client for delivery to customers
in Utah are exempt from use tax so long as your client qualifies under Section
501 (c) (3) of the Internal Revenue Code and the sales are made in the conduct
of the organization's regular religious or charitable activities. Section
59-12-104.1 of the Utah Code (enclosed) explains this exemption. Your client
may use the enclosed Application for a Sales Tax Exemption Number to obtain a
tax number. Note that we have moved from the address that is shown on the form.
Our current address is 210 North 1950 West, Salt Lake City, Utah 84134.

To
solicit donations in Utah, your client may be required to file a letter with
the Consumer Protection Division of the Department of Commerce. We cannot offer
opinions related to unemployment compensation or workers compensation. The
following agencies should be able to answer your questions on these matters.

Registration
to solicit donations:

Department
of Commerce

Consumer
Protection

160
East 300 South Salt Lake City, Utah 84111

(801)530-7631

Workers
Compensation:

Industrial
Commission

160
East 300

South
Salt Lake City, Utah 84111

(801)530-6880

Unemployment
compensation:

Employment
Security Office

140
East 300 South

Salt
Lake City, Utah 84111

(801)536-7400.

Please
let us know if we can be of further assistance.

For
the Commission,

Alice
Shearer

Commissioner