Tax Type
Retail Sales and Use Tax
Description
Day-care center preschool development program; Nonprofit criteria
Topic
Taxability of Persons and Transactions
Date Issued
12-13-1990
December 13, 1990
Dear ****
This will reply to your letter of August 20, 1990 in which you request a ruling as to whether * * * (the "Taxpayer") qualifies for exemption from the Virginia income tax and retail sales and use tax.
FACTS
The Taxpayer was organized to provide a preschool development program for at risk children from infancy to four years old and a literacy program for parents or guardians of the children. The children receive a head start in learning more about themselves and the world around them and the parent or guardian receives instruction in basic skills, such as reading, math, parenting, nutrition and job training. It has recently sought exemption from federal income taxation pursuant to Internal Revenue Code (IRC) § 501(c)(3).
It seeks exemption from the Virginia income tax and retail sales and use tax.
RULING
Corporate Income Tax: Va. Code § 58.1-401 and Virginia Regulation 630-3-401(F) exempt from the state income tax nonprofit corporations which are exempt from federal income tax under IRC § 501(c). Thus, the Taxpayer's eligibility for Virginia income tax exemption is dependent upon its receipt of federal income tax exemption. Please note, however, that even if the Taxpayer receives such exempt status it must file a Virginia return and pay Virginia income tax on any unrelated business taxable income as defined in IRC § 512.
Retail Sales and Use Tax: There is no general exemption from the Virginia Retail Sales and Use Tax for nonprofit organizations. The only exemptions from the tax are set out in Va. Code § 58.1-608 (copy enclosed). Va. Code §§ 58.1-608(4)(b) and 58.1-608(4)(i) provide exemptions from the tax for purchases of tangible personal property by certain institutions of learning and day care centers/preschools, respectively.
VR 630-10-96 provides that for an organization to qualify as an "institution of learning" for purposes of sales and use tax exemption, it must be nonprofit and:
- employ a professionally-trained faculty;
- enroll and graduate students on the basis of academic achievement;
- prescribe courses of study; and
- provide instruction at regular intervals over a reasonable period of time.
- be exempt from federal income taxation under IRC § 501(c)(3);
- be organized primarily for the purpose of operating a state-licensed day care center or a preschool;
- hire only certified public school teachers or teachers who are college graduates holding a degree from an accredited four year institution of higher education and certified by an organization recognized by the U.S. Department of Education or by some other nationally recognized organization; and
- have a regularly prescribed curriculum.
The Taxpayer's qualification for either of the above exemptions as noted in each criteria list is dependent upon its receipt of tax-exempt status under IRC § 501(c)(3). Assuming it does receive such status, based on the information provided by the Taxpayer and the rule of strict construction of all exemption statutes established by the courts, I must conclude that the Taxpayer does not meet all of the above criteria to qualify for tax exemption as a nonprofit "institution of learning."
However, from the information provided, it is not possible to make a determination as to the Taxpayer's eligibility for the day care exemption. If the Taxpayer is organized primarily to operate a preschool, meets all of the other exemption criteria, and receives tax-exempt status from the Internal Revenue Service, it will qualify for the exemption. Otherwise, the Taxpayer is required to pay the tax on all purchases of tangible personal property to the retailer at the time of purchase. If the retailer is not registered to collect the tax, the Taxpayer must report and pay the use tax on a Consumer Use Tax Return, ST-7.
If you have any questions regarding this matter, please contact the Department.
Sincerely
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner