Tax Type
Retail Sales and Use Tax
Description
Nonprofit organization; Exemption criteria
Topic
Taxability of Persons and Transactions
Date Issued
04-21-1987
April 21, 1987
Re: Request for Ruling/Sales and Use Tax
Dear *********************
This will reply to your recent inquiry on the status of *********** under the retail sales and use tax.
As you may know, Virginia law does not contain an exemption for nonprofit organizations generally: therefore, the association would have to be deemed an exempt institution of learning or a political subdivision of the Commonwealth in order to gain a comprehensive sales and use tax exemption.
§58.1-608.23 provides a sales and use tax exemption for "[t]angible personal property for use or consumption by a college or other institution of learning...provided such college, (or) institution of learning...is not conducted for profit." However, in interpreting the exemption statute, Virginia Regulation 630-10-96 (copy enclosed) provides that in order to be exempt, an institution of learning must "(a) employ a professionally trained faculty, (b) enroll and graduate students on the basis of academic achievement; (c) prescribe courses of study: and (d) provide instruction at regular intervals over a reasonable period of time." These criteria were specifically upheld by the Virginia Supreme Court in Progressive Community Club v. Commonwealth, 215 Va. 732, 213 S.E.2d 759 (1975).
In determining whether the association in this case meets the criteria for exemption, I feel that the department is bound by the opinion of the U. S. District Court for the Eastern District of Virginia in a very similar case. In United States of America v. Commonwealth, 500 F. Supp. 729 (E.D. Va. 1980), the court concluded that the institutions of learning exemption was not available to Associated Universities, Inc., an organization composed of nine colleges and universities that operated a federally owned research facility.
Because the cases seem very similar in nature, I have enclosed a copy of Judge Warriner's opinion for your review. As you will see, the court did not find the research and teaching activities of Associated Universities, Inc. sufficient to qualify the organization as an exempt institution of learning. Further, the court did not find basis for exemption on the grounds that each member of the organization was an exempt institution of learning. Based on the opinion and my review of the additional information you furnished on April 8, 1987, I do not feel that the association in this instance can be deemed an exempt institution of learning.
Further, as the association is a corporation consisting of both public and private members, I cannot conclude that it is an exempt political subdivision of the Commonwealth. Although the facility previously enjoyed exempt status as the *********** the transfer of operating responsibility to the association negated its exempt status as a governmental agency.
Notwithstanding the inapplicability of the institutions of learning and governmental exemptions, the association can take advantage of the exemption provided in §58.1-608.19 for "tangible personal property...for use or consumption directly and exclusively in basic research or research and development in the experimental or laboratory sense." I have enclosed a copy of Virginia Regulation 630-10-92, which explains the exemption in greater detail.
While the research exemption does not apply to administrative supplies, building materials, office equipment, and similar items, it will apply to equipment, tools, computers, instruments, etc. that are used exclusively in research activities. Thus, most if not all research equipment and supplies should qualify for exemption, as well as the components of the continuous electron beam accelerator. I have already mailed under separate cover a number of research and development exemption certificates, Form ST-11, to the association.
If you have any questions or if you feel that the exemption would apply to the association under the Warriner opinion, please do not hesitate to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner