Document Number
85-213
Tax Type
Retail Sales and Use Tax
Description
Donations to food banks and charitable organizations; Retail Sales
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
12-09-1985

  • December 9. 1985


    Re: Request for Ruling/Sales and Use Tax


    Dear ****

    This will reply to your letter of July 18, 1985 requesting a ruling on the correct application of the sales and use tax to a variety of transactions. The questions presented in your letter and our responses thereto are as follows:

    1. What is the meaning of the term "food bank" in the sales and use tax law; and do the Salvation Army and other charitable organizations which distribute food as part of their charitable activities qualify for the "food bank" exemption?
      • A food bank, within the meaning of the Virginia sales and use tax law is a nonprofit organization operated exclusively for the distribution of food to infants, the ill or the needy. To the extent that the Salvation Army and other charitable organizations do more than just distribute food to infants, the ill or the needy, they do not qualify for the exemption in Section 58.1-608(23) of the Code. Therefore, to qualify for the food bank exemption, a nonprofit organization may not be engaged in any other nonprofit activity.

    2. Is any sales or use tax payable by a retail merchant who either donates food from his inventory to a food bank which then sells that food to the needy at a fraction of its retail price or to a charity which distributes the food to the needy at no charge? Furthermore, must the food bank which sells the food to the needy collect the tax on such sales?
      • The food donated by a merchant to a food bank would qualify for the exemption cited above, while food donated to the salvation army or local church which are not organized exclusively for the distribution of food to infants, the ill or the needy, would generally not qualify for the exemption. However, if a merchant makes such a donation to a charitable. nonprofit organization such as the Salvation Army, and records it on its books as a withdrawal from inventory at zero gross receipts, such a withdrawal from inventory would represent a non-taxable "distribution" of tangible personal property for resale.
      • Furthermore, a qualifying food bank's sale of food to the needy would be exempt from the tax pursuant to Section 58.1-608(23) of the Code.

    3. Is any sales or use tax payable by a merchant or manufacturer who donates surplus inventory to the Salvation Army or Volunteers of America for sale by them at retail pursuant to the tax?
      • Section 58.1-604 of the Virginia Code imposes "a tax upon the use or consumption of tangible personal property" while Section 58.1-602(20) of the Code defines "use" as the "exercise of any right or power over tangible personal property incident to the ownership thereof." Further, Section 63O-10-32 of the Virginia Retail Sales and Use Tax Regulations provides that "any person who withdraws an item of tangible personal property for his/her own use from an inventory of property on which no tax has been paid must report tax on the cost price of all property withdrawn for purposes other than sale...[f]or example, for personal use, gift or donation."
      • Accordingly, in instances where a retailer makes a withdrawal from inventory of property purchased pursuant to a Certificate of Exemption, for donation to a charitable organization for resale, such a withdrawal from inventory represents a taxable use of the property to the extent of such property's cost price.
      • However, if a retailer makes a withdrawal from inventory of property purchased pursuant to a Certificate of Exemption for donation to a charitable organization for resale and records such transaction on its books as a withdrawal from inventory at zero gross receipts, (rather than as a charitable contribution) such a withdrawal from inventory represents a non-taxable "distribution" of tangible personal property for resale.

    4. Is any sales or use tax payable by a merchant or manufacturer who sells surplus inventory with a cost basis of $100 to the Salvation Army or Volunteers of America at a cost of $1, for resale by them at retail pursuant to the tax. (Or is such a "bargain sale" an exempt sale for resale)?
      • Section 58.1-602(14) of the Virginia Code excludes from the definition of "retail sale" for sales and use tax purposes, sales for resale "made in strict compliance with rules and regulations applicable to this Chapter." Therefore, to the extent that the "bargain sale" transaction described above is made pursuant to a valid resale exemption certificate, and is recorded on the Company's books as a withdrawal from inventory rather than as a charitable contribution, it will be exempt from sales and use tax.

    5. Are any of the following transactions, involving the charitable donation or sale of goods by a merchant, manufacturer or professional to a variety of charitable, nonprofit or government organizations, exempt from the sales and use tax?
      • (a) Donation of blankets to the Salvation Army for distribution at no charge to the needy.
      • Taxable, since such a donation represents a taxable use of property withdrawn from inventory, on which no tax has been previously paid.

    (b) Donation or sale of blankets and emergency supplies to the American Red Cross for distribution at no charge following a natural disaster.
      • The donation of such items is taxable, in the absence of any specific exemption in the sales and use tax law. However, the sale of such items would be exempt from the tax as the sale of property to a branch of the U.S. government.

    (c) Donation of lumber and supplies to the Jaycees for use in building playground equipment in a public park. Could the same supplies be purchased by a locality exempt from the tax?
      • The first transaction between the merchant and the Jaycees would not qualify for exemption from the tax since such a donation represents a taxable use of property withdrawn from inventory on which no tax has been previously paid. However, the sale of such property to a locality would qualify for the exemption for tangible personal property purchased for use or consumption by "any political subdivision of the Commonwealth." Section 58.1-608(18) of the Virginia Code.

    (d) Donation of prescription eyeglasses to the Lions Club for free distribution to the needy. Would tax be due if the same eyeglasses were purchased by the needy?
      • The donation of prescription eyeglasses to the Lions Club for free distribution to the needy would not qualify for the exemption provided in Section 58.1-608(21), which exempts sales of eyeglasses dispensed by or on prescriptions or work orders of licensed optometrists, ophthalmologists and opticians. Nor would the sale of such glasses by the Lions Club to the needy qualify for this exemption, since only sales by or on the work orders of licensed optometrists, ophthalmologists and opticians qualify for the exemption.

    (e) Donation or sale of antique furniture to the Commonwealth for use in the Governor's Mansion.
      • The donation of antique furniture to the Commonwealth would not qualify for exemption since such donation represents a taxable use of property withdrawn from inventory on which no tax has been previously paid. However, the sale of such furniture would qualify for the exemption provided Section 58.1-608(18) for sales of tangible personal property for use or consumption by the Commonwealth.

    (f) Donation or sale of feed to a 4-H Club for use in its animal husbandry program.
      • The donation of feed to a 4-H club or its members for use in animal husbandry would not qualify for the exemption provided in Section 58.1-6O8(3) of the Code, since this exemption applies only to sales of such feed, necessary for use in agricultural production for market However, sales of feed to a 4-H club or its members for use in animal husbandry programs would qualify for the exemption since one of the primary goals of such programs is the eventual sale on the open market of the agricultural products produced by such animals or the animals themselves.

    (g) Donation or sale of sports equipment to public schools or state supported colleges.
      • The donation of sports equipment to public schools or state supported colleges would not qualify for exemption since such a donation represents a taxable use of property withdrawn from inventory on which no tax has been previously paid. However, the sale of sports equipment to such schools would be exempt from the tax if paid for out of the schools' activity funds and if such equipment becomes the property of the schools themselves.

    (h) Donation of certified, required textbooks to public schools for distribution free of charge to the needy. Would the tax be due if the same textbooks were purchased by the students?
      • The donation to public schools of certified, required textbooks for distribution free of charge to the needy would not qualify for exemption from the tax since such a donation represents a taxable use of property withdrawn from inventory on which no tax has been previously paid. The exemption provided in Section 58.1-6O8(14), applies only to sales of such textbooks by local school boards or authorized agencies thereof. However, the tax would not be due if such textbooks were donated to schools for resale, and recorded by the donor as withdrawals from inventory at zero gross receipts.

    (i) Donation or sale. of first aid equipment to fire companies and rescue squads.
      • The donation of first aid equipment to fire companies and rescue squads would not qualify for exemption since such a donation represents a taxable use of property withdrawn from inventory on which no tax has been previously paid. However, the sale of such equipment to nonprofit volunteer fire companies and rescue squads would qualify for the exemption provided in 'Section 58.1-608(27) of the Code.

    (j) Donation or sale of art to the Virginia Museum.
      • The donation of artwork to the Virginia Museum would not qualify for exemption since such a donation represents a taxable use of property withdrawn from inventory on which no tax has been previously paid. However, the sale of such artwork to the Virginia museum would qualify for the exemption provided in Section 58.1-608(44) of the Code.

    (k) Donation of prepared meals to the Salvation Army for distribution free of charge to the needy; or donation of meals by a restaurant to its own employees as part of their wages.
      • The donation of prepared meals to the Salvation Army for free distribution to the needy would not qualify for exemption since such a donation represents a taxable use of property withdrawn from inventory on which no tax has been previously paid. However, the meals furnished to a restaurant's employees as a part of their wages would be exempt from the tax under Section 58.1-6O8(32) of the Code.

    I hope that all of the above has answered your questions but please let me know if we can be of further assistance.

    Sincerely

    W. H. Forst
    Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46