Could a nonprofit church treat sales at its annual three-week fundraiser as exempt occasional sales?

Plain-English summary

Virginia ruled that the church's annual three-week fundraiser did not qualify for the occasional-sale exemption. The church had to continue collecting and remitting sales tax on its pumpkins, baked goods, and handicrafts.

The church argued that one annual event meant fewer than three sales occasions. The Department instead looked at the event's actual scale and duration. Three weeks of sales were sufficient in number, scope, and character to require registration, especially because the items competed with goods sold by ordinary retailers.

The ruling followed earlier decisions denying occasional-sale treatment to an eleven-day arts festival and to seasonal ornament sales conducted over an extended period.

What this means for you

• Nonprofit or federal tax-exempt status does not by itself exempt fundraising sales from Virginia sales tax.
• A multi-day event can be a substantial retail activity even if it happens only once per year.
• Virginia considers duration, number and character of sales, and competition with regular retailers.
• A truly isolated sale may be different, but this three-week event was not occasional.

Common questions

Did the church's § 501(c)(3) status make the sales exempt?

No. The ruling treated the occasional-sale question separately from the church's federal tax-exempt status.

Was each day treated as a separate event?

The ruling did not use that formula. It focused on the extended three-week course of sales and its retail character.

Citations and references

• Va. Code §§ 58.1-609.10(2) and 58.1-602.
• 23 VAC 10-210-1080(B).
• The source discusses P.D. 95-122 and P.D. 92-260.

Subject

Occasional sale exemption on a three week fundraising event.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 06-129

Original ruling text

October 25, 2006

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request a ruling regarding the application of the retail sales and use tax to tangible personal property sold at the Taxpayer's annual fundraising event.

FACTS

The Taxpayer is a nonprofit church exempt from federal taxation under Internal Revenue Code § 501(c)(3). The Taxpayer has an annual fundraising event that lasts for three weeks in October. At this event, pumpkins, baked goods and handicrafts are sold. The Taxpayer is registered for the Virginia retail sales and use tax, and in past years the Taxpayer has collected and remitted the sales tax when these items are sold at its annual event. The Taxpayer, however, contends that the occasional sale exemption should apply to these sales because it is making fewer than three sales per year.

RULING

Virginia Code § 58.1-609.10 2 provides that the retail sales and use tax does not apply to an occasional sale, as defined in Va. Code § 58.1-602. Virginia Code § 58.1-602 defines occasional sale as "a sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration, including the sale or exchange of all or substantially all the assets of any business and the reorganization or liquidation of any business, provided such sale or exchange is not one of a series of sales and exchanges sufficient in number, scope and character to constitute an activity requiring the holding of a certificate of registration."

Title 23 of the Virginia Administrative Code 10-210-1080 B further defines an occasional sale as "[a] sale by a person who is engaged in sales on three or fewer separate occasions within one calendar year, except that sales at fairs, flea markets, circuses and carnivals and sales made by peddlers and street vendors are not occasional sales."

In Public Document (P.D.) 95-122 (5/18/95), the Department addresses tangible personal property sold by the auxiliary arm of a major nonprofit charitable organization exempt from federal taxation under I.R.C. § 501(c)(3). As a fundraising activity, the taxpayer sold Christmas ornaments at various locations during the autumn season. Because the sales were made over an extended period of time and at multiple locations, the Department ruled the occasional sale exemption did not apply to these sales because they were sufficient in number, scope and character to require the taxpayer to register for and collect the tax.

In P.D. 92-260 (12/28/92), the taxpayer sponsored an annual arts celebration event that lasted for eleven days. The Department held that the occasional sale exemption was not applicable to sales made at this event, stating that the Department has consistently required tax collection on sales made at long-term events such as the taxpayer's eleven-day festival. The Department's ruling added that events of such duration clearly have the potential to place other local dealers at a competitive disadvantage.

In this instance, the Taxpayer's annual fundraising event lasts for three weeks, and the Taxpayer sells items that may be sold by other retailers. The Department has consistently required tax collection on sales made at long-term events like the Taxpayer's annual three-week fundraising event. The Taxpayer holds itself out as a retailer that may be in competition with other businesses or organizations that are required to collect the tax. Because the sales are made over an extended period of time, the sales are sufficient in number, scope and character to require the Taxpayer to register for and collect the tax. Accordingly, the occasional sale exemption does not apply to sales made at the Taxpayer's annual fundraising event. As such, the Taxpayer is correctly registered for the retail sales and use tax, and should continue to collect and remit the tax as it has done in prior years.

The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-403315210P