Could a Virginia nonprofit high-school orchestra buy and resell kitchen products tax-free for a school fundraiser?

Subject

Tax-exempt sales for a nonprofit school fundraiser

Plain-English summary

Virginia ruled that the nonprofit high-school orchestra could buy the company's kitchen products and resell them at its fundraiser without paying or collecting sales and use tax.

The orchestra had followed Virginia's nonprofit-certification process and supplied the company with a retail sales-and-use-tax exemption certificate. That certificate covered both its purchases and its retail sales for the fundraiser.

The exemption was conditional: the fundraiser's net proceeds had to be contributed directly to the school or used to purchase certified school equipment. The ruling also explains that the earlier school-specific exemption had been grandfathered only until July 1, 2007; after that date, nonprofit elementary and secondary schools used the broader nonprofit exemption process under Va. Code § 58.1-609.11(E).

What this means for you

• A nonprofit label alone was not the basis for the result; the orchestra had obtained the required Virginia exemption certificate.
• The certificate allowed the orchestra to make the fundraising purchase tax-free and to make the related retail sales without collecting tax.
• The net proceeds had to go directly to the school or pay for certified school equipment.
• Vendors should retain and review the exemption documentation provided by the nonprofit purchaser.
• This ruling describes the statutory transition in effect in 2007, so current fundraisers should confirm today's certification rules.

Common questions

Did the kitchen-products company have to charge the orchestra sales tax?

No, based on the orchestra's valid exemption certificate and the stated fundraising use.

Did the orchestra have to collect sales tax from fundraiser customers?

No. The Commissioner said the certificate entitled the orchestra to purchase and sell the products without paying or collecting Virginia sales and use tax.

Could the orchestra use the net proceeds for any purpose?

Not under this ruling. The proceeds had to be contributed directly to the school or used to buy certified school equipment.

Did the old school-specific exemption still control?

No. The ruling says that exemption was grandfathered only until July 1, 2007; afterward, schools were subject to the nonprofit exemption process in Va. Code § 58.1-609.11(E).

Citations and references

• Va. Code § 58.1-609.11(A), (B), (C), and (E).
• Former Va. Code § 58.1-609.4(8).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-198

Original ruling text

November 30, 2007

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling on the application of the retail sales and use tax to the sale of products from * (the "Company") to the *** ("the Orchestra") for resale in a fundraising event.

FACTS

The Orchestra, a nonprofit high school orchestra program, is holding a fundraiser in which the Company's products will be sold. The Company sells kitchen tools and products through independent consultants. The Company requests a ruling on the application of the retail sales and use tax to the sale of their products by the Orchestra. The Orchestra has provided the Company with a retail sales and use tax certificate of exemption.

RULING

Prior to July 1, 2004, the Code of Virginia set out specific exemption statutes for certain nonprofit organizations, including schools. Among the specific exemptions was an exemption for tangible personal property purchased for use, consumption, or sale at retail by a nonprofit elementary or secondary school or group associated with a nonprofit school for use in fundraising activities, the net proceeds of which are contributed directly to the school or used to purchase certified school equipment.

Effective July 1, 2004, the General Assembly enacted a nonprofit exemption for any nonprofit organization that meets certain criteria. Also effective July 1, 2004, the General Assembly enacted a new process by which nonprofit organizations obtain sales and use tax exemptions. See Va. Code § 58.1-609.11 B and C.

Virginia Code § 58.1-609.11 A provides that any nonprofit organization that held a valid exemption certificate on June 30, 2003 would retain its exemption. The exemption for tangible personal property purchased for use or consumption, or sale at retail by a nonprofit elementary or secondary school or group associated with a nonprofit elementary or secondary school previously under Va. Code § 58.1-609.4 8 was grandfathered under Va. Code § 58.1-609.11 until expiration on July 1, 2007. After July 1, 2007, nonprofit elementary and secondary schools are subject to the nonprofit exemption as provided under Va. Code § 58.1-609.11 E.

The Orchestra has followed the nonprofit process as outlined under Va. Code § 58.1-609.11 and obtained a retail sales and use tax certificate of exemption. The Orchestra's certificate of exemption entitles the Orchestra to purchase and sell tangible personal property without paying or collecting the Virginia sales and use tax. Therefore, the Orchestra may purchase and sell the Company's products exempt of the retail sales and use tax as part of its fundraising activities, provided the net proceeds are contributed directly to the school or used to purchase certified school equipment.

This ruling is based on the facts as provided as summarized above. Any change in the fact or the introduction of new facts may lead to a different result.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this ruling, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***. Additionally, you may contact the Department's Office of Customer Services, Nonprofit Exemption Unit at (804) 371-4023.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1789335116i