Tax Type
Retail Sales and Use Tax
Description
Third party fund raiser for nonprofit elementary or secondary school
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
04-19-1996
April 19, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This is in response to your letter of December 16, 1994 and subsequent correspondence in which YOU seek correction of a sales and use tax assessment issued to ************* (the Taxpayer) for the period February 1992 through June 1994.
As noted in my draft of March 30, 1995, additional documents which you provided allowed for a revision of the sales measure. Further, I understand that subsequent to a meeting with staff from the department's Office of Tax Policy, payment was made on the noncontested issues representing fund-raising sales made by the Taxpayer on behalf of non-school organizations. Accordingly, the only issue which remains to be addressed is the application of the tax to fund-raising sales made on behalf of school organizations as governed by Code of Virginia § 58.1-609.4(8).
The Taxpayer conducts professional fund-raising activities on behalf of nonprofit elementary and secondary school organizations (i.e., school bands, drama clubs, debate teams, etc.). In providing its service, the Taxpayer contracts with these organizations to: (i) solicit potential customers via telemarketing; (ii) notify these potential customers that it is soliciting sales on behalf of the school organization; (iii) deliver products to customers at their homes; (iv) collect payment from customers; and, (v) remit to the organization a commission on each sale.
Furthermore, the Taxpayer is registered as a professional fund-raiser with the Virginia Division of Consumer Affairs (VDCA) and as such is subject to regulations administered by that agency. I understand that schools which choose to use professional fund-raisers to solicit sales on their behalf must also register with VDCA for each fund-raising campaign.
Provided that specified criteria are satisfied, this portion of the exemption authorizes nonprofit schools and related school organizations to make fund-raising sales exempt of the tax. Prior to 1987, this authorization did not extend to other sellers. A 1987 amendment to § 58.1-609.4(8) expanded the exemption to certain fund-raising sales by private vendors and provides that:
As I indicated in my draft response, sales to students of class rings, photographs, caps and gowns, etc. were exempt (prior to this amendment) only if such sales were made by the schools themselves, but were taxable if made by a private vendor. The 1987 amendment was intended to eliminate such situations.
Therefore, the department determined in Public Document 90-35 (3/19/90) that the sale of tangible personal property by a private vendor qualifies for the exemption when such sales are made directly to the student. Furthermore, in Public Document 88-291 (10/27/88), the department ruled that the net proceeds or commissions paid by private vendors under the fund-raising exemption must be paid directly to the school and not to a PTA or school organization.
You maintain that the Taxpayer's fund-raising sales substantially satisfy these mandates. In regard to the first, you point out that a specific fund-raising campaign is conducted within a school's geographic boundaries. As such, many customers are family of the students attending the school. In this regard you indicate that just as class rings and school photos are likely paid for by the student's family, so too are the products sold by the Taxpayer during its fund-raising campaigns.
In regard to the second requirement, you have submitted affidavits from a number of school principals which show that for many campaigns at least, the schools, and not the organizations, have direct control over the proceeds of the Taxpayer's fund-raising campaigns.
In the instant case I find that the contested transactions are "other fund-raising programs" as envisioned in § 58.1-609.4(8) and are therefore exempt sales. Such sales will continue to be exempt provided: (i) the Taxpayer remains a registered professional fund-raising solicitor under Code of Virginia § 57-61 and adheres to the requirements set out in that statute for each solicitation campaign; (ii) the fund-raising program is conducted in the nonprofit school's geographical boundaries or directed to individuals associated with the school; and (iii) the schools have direct control over the proceeds of the fund-raising program.
Also, the exemption applies only to fund-raising sales made on behalf of nonprofit elementary and secondary schools. No exemption applies to fund-raising sales made on behalf of colleges, universities or other nonprofit organizations.
Based on this determination, the outstanding balance of the unpaid assessment will be abated. If you have any questions regarding this letter, please contact *** at ***** .
Danny M. Payne
Tax Commissioner
OTP/8950I
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This is in response to your letter of December 16, 1994 and subsequent correspondence in which YOU seek correction of a sales and use tax assessment issued to ************* (the Taxpayer) for the period February 1992 through June 1994.
As noted in my draft of March 30, 1995, additional documents which you provided allowed for a revision of the sales measure. Further, I understand that subsequent to a meeting with staff from the department's Office of Tax Policy, payment was made on the noncontested issues representing fund-raising sales made by the Taxpayer on behalf of non-school organizations. Accordingly, the only issue which remains to be addressed is the application of the tax to fund-raising sales made on behalf of school organizations as governed by Code of Virginia § 58.1-609.4(8).
FACTS
The Taxpayer conducts professional fund-raising activities on behalf of nonprofit elementary and secondary school organizations (i.e., school bands, drama clubs, debate teams, etc.). In providing its service, the Taxpayer contracts with these organizations to: (i) solicit potential customers via telemarketing; (ii) notify these potential customers that it is soliciting sales on behalf of the school organization; (iii) deliver products to customers at their homes; (iv) collect payment from customers; and, (v) remit to the organization a commission on each sale.
Furthermore, the Taxpayer is registered as a professional fund-raiser with the Virginia Division of Consumer Affairs (VDCA) and as such is subject to regulations administered by that agency. I understand that schools which choose to use professional fund-raisers to solicit sales on their behalf must also register with VDCA for each fund-raising campaign.
DETERMINATION
-
- Code of Virginia § 58.1-609.4(8) provides an exemption from the tax for:
-
- Tangible personal property purchased for use, consumption, or sale at retail by an elementary or secondary school conducted not for profit, or Parent Teacher Association or other group associated with an elementary or secondary school conducted not for profit for use in fund-raising activities, the net proceeds (gross receipts less direct expenses) of which are contributed directly to the school or used to purchase certified school equipment, and certified school equipment purchased by such groups for contribution directly to the school.
Provided that specified criteria are satisfied, this portion of the exemption authorizes nonprofit schools and related school organizations to make fund-raising sales exempt of the tax. Prior to 1987, this authorization did not extend to other sellers. A 1987 amendment to § 58.1-609.4(8) expanded the exemption to certain fund-raising sales by private vendors and provides that:
-
- Notwithstanding the other provisions of this subsection, the tax shall not apply to the sale of class rings, school photographs, and other fund-raising programs from which an elementary or secondary school ... receives a commission or the net proceeds after the payment of vendors and other direct expenses.
As I indicated in my draft response, sales to students of class rings, photographs, caps and gowns, etc. were exempt (prior to this amendment) only if such sales were made by the schools themselves, but were taxable if made by a private vendor. The 1987 amendment was intended to eliminate such situations.
Therefore, the department determined in Public Document 90-35 (3/19/90) that the sale of tangible personal property by a private vendor qualifies for the exemption when such sales are made directly to the student. Furthermore, in Public Document 88-291 (10/27/88), the department ruled that the net proceeds or commissions paid by private vendors under the fund-raising exemption must be paid directly to the school and not to a PTA or school organization.
You maintain that the Taxpayer's fund-raising sales substantially satisfy these mandates. In regard to the first, you point out that a specific fund-raising campaign is conducted within a school's geographic boundaries. As such, many customers are family of the students attending the school. In this regard you indicate that just as class rings and school photos are likely paid for by the student's family, so too are the products sold by the Taxpayer during its fund-raising campaigns.
In regard to the second requirement, you have submitted affidavits from a number of school principals which show that for many campaigns at least, the schools, and not the organizations, have direct control over the proceeds of the Taxpayer's fund-raising campaigns.
In the instant case I find that the contested transactions are "other fund-raising programs" as envisioned in § 58.1-609.4(8) and are therefore exempt sales. Such sales will continue to be exempt provided: (i) the Taxpayer remains a registered professional fund-raising solicitor under Code of Virginia § 57-61 and adheres to the requirements set out in that statute for each solicitation campaign; (ii) the fund-raising program is conducted in the nonprofit school's geographical boundaries or directed to individuals associated with the school; and (iii) the schools have direct control over the proceeds of the fund-raising program.
Also, the exemption applies only to fund-raising sales made on behalf of nonprofit elementary and secondary schools. No exemption applies to fund-raising sales made on behalf of colleges, universities or other nonprofit organizations.
Based on this determination, the outstanding balance of the unpaid assessment will be abated. If you have any questions regarding this letter, please contact *** at ***** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8950I
Rulings of the Tax Commissioner