When could an IRC § 501(c) organization sell food or event tickets that included food without collecting Virginia sales tax under the 2008 policy?

Subject

Nonprofit food and food-included event-ticket sales

Plain-English summary

Virginia announced a prospective sales-tax collection exception for qualifying IRC § 501(c) organizations beginning October 1, 2008. The policy covered direct sales of food, prepared food, and meals, as well as tickets to events that included those items.

The organization could avoid collecting tax only if all five conditions were met:

• It was not otherwise required to register as a dealer under Va. Code § 58.1-612.
• It paid sales tax to vendors on the food or catering and preparation services it purchased.
• It held no more than 12 qualifying events during the year.
• It used all profits to support itself or donated them to another IRC § 501(c) organization.
• It kept records proving compliance for three years after each event.

One fundraising occasion lasting no more than seven consecutive days counted as one event. Each additional seven-day period counted as another event. The bulletin applied only prospectively and superseded earlier Department rulings or guidance on the subject going forward.

What this means for you

• Federal § 501(c) status alone did not satisfy the bulletin; every listed condition had to be met.
• The organization paid tax on its food or catering inputs even when it did not collect tax from attendees.
• Track each event's duration because an extended fundraiser can count as multiple events.
• Preserve records of purchases, sales, event dates, and use of profits for at least three years under this policy.
• This is historical guidance; check current Virginia nonprofit-sales rules before using it today.

Common questions

Could an organization hold more than 12 qualifying occasions in a year?

No. The bulletin limited the collection exception to no more than 12 events annually.

Could a three-day fundraiser with several meals count as one event?

Yes. The bulletin's example treated a three-day fundraiser as one event even when separate tickets were sold for different meals.

Did the policy change prior transactions?

No. It applied prospectively and did not change sales made before the bulletin was issued.

Citations and references

• IRC § 501(c).
• Va. Code § 58.1-612.
• 23 VAC 10-210-30 and 23 VAC 10-210-930.
• P.D. 08-76, P.D. 98-31, and P.D. 92-260, as discussed in the bulletin.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-189

Original ruling text

TAX BULLETIN 08-11
Virginia Department of Taxation

October 20, 2008

IMPORTANT INFORMATION REGARDING

THE SALE OF FOOD OR THE SALE OF TICKETS TO EVENTS THAT INCLUDE THE PROVISION OF FOOD BY INTERNAL REVENUE CODE § 501(c) ORGANIZATIONS

Effective October 1, 2008, the Virginia Department of Taxation (“TAX”) has changed its policy with respect to sales of 1) food, prepared food and meals and 2) tickets to events that include the provision of food, prepared food and meals by organizations that are exempt from federal income taxation under Internal Revenue Code (“IRC”) § 501(c).
Current Policy with Respect to Event Tickets that Include the Provision of Meals
23 Virginia Administrative Code (VAC) 10-210-930 provides:

Retail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes, and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable.”

23VAC10-210-30 provides:

The tax does not apply to sales of tickets, fees, charges, or voluntary contributions for admissions to places of amusement, entertainment, exhibition, display, or athletic contests, nor to charges made for participation in games or amusement activities. However, “cover charges” or “minimum charges” which include the provision of or the entitlement to food, drinks, or other tangible personal property constitute a sale of property and are subject to the tax.

TAX recently held that tickets sold by a nonprofit organization to its members for an event that included the provision of a catered meal are subject to the Retail Sales and Use Tax in accordance with 23VAC10-210-30. (See Public Document (“PD”) 08-76, (June 6, 2008)). TAX has also ruled that a business that assisted nonprofit organizations in fundraising efforts by making sales of food, the proceeds of which were given to the nonprofit, improperly collected sales tax from the nonprofit organizations based on its cost to buy the food, rather than collecting sales tax from the ultimate consumers of the food based on the selling price. (See PD 98-31).

Change in Policy Effective October 1, 2008

Effective October 1, 2008, any organization that is exempt from federal income taxation under IRC § 501(c) may make sales of 1) food, prepared food and meals and 2) tickets to events that include the provision of food, prepared food and meals without collecting sales tax on such sales provided the following requirements are met.

The organization must not be required to register as a dealer under Va. Code § 58.1-612 based on its other activities;

The organization must pay sales tax to its vendors on the sales price paid by the organization for the food or the catering or food preparation services provided;

The organization may not hold such events on more than 12 occasions per year;

The organization must use any profits from the sales of food or event tickets solely to support the organization or for donation to another IRC § 501(c) organization; and

The organization must maintain records for three years after each event to verify these requirements.

What Constitutes an Event

For purposes of determining what constitutes an event, TAX will follow the rules set forth for occasional sales. TAX has consistently held that the occasional sale exemption does not apply where sales are made over an extended period of time, because such sales are sufficient in number, scope, and character to require the taxpayer to register for and collect the Retail Sales and Use Tax. For example, in PD 92-260 (December 28, 1992), sales made at the taxpayer’s annual eleven-day arts celebration did not qualify for the occasional sale exemption. TAX ruled that events of such duration have the potential to place other local dealers at a competitive disadvantage. Mindful of this concern, an organization may count a fundraising occasion as one event, provided it does not extend beyond a seven-day consecutive period. Every seven-day consecutive period thereafter shall constitute an additional event for purposes of this Tax Bulletin.

Example: A nonprofit organization holds a three-day fundraising event. The purchase of one ticket entitles the ticket holder to a catered dinner on Friday, a catered lunch and dinner on Saturday, and a catered breakfast on Sunday. The three-day fundraiser constitutes one event. This is the case even if the organization makes separate ticket sales for breakfast, lunch, and dinner.

The change in policy set forth in this Tax Bulletin will be applied prospectively and does not affect the taxability of sales of 1) food, prepared food and meals and 2) tickets to events that include the provision of food, prepared food and meals made prior to issuance of this Tax Bulletin. On a prospective basis, this Tax Bulletin supersedes any prior rulings or guidance issued by TAX on this subject.

If you have any questions, please visit our website at www.tax.virginia.gov , or contact TAX at (804) 367-8037.