Current through Register Vol. 49, No. 13, September 23, 2024
Subpart 1.
Applicable law.
Minnesota Statutes, section
297A.70,
subdivision 4, exempts from sales and use tax the gross receipts from the sale
of tangible personal property to, and storage, use, or other consumption of
such property by, any corporation, society, association, foundation, or
institution organized and operated exclusively for charitable, religious, or
educational purposes if the property purchased is to be used in the performance
of charitable, religious, or educational functions.
No part of the net earnings may inure to the benefit of any
private shareholders.
Sales of telecommunications services under Minnesota
Statutes, section
297A.61, subdivision
3, paragraph (i); electricity, gas, water, or steam pursuant to Minnesota
Statutes, section
297A.61, subdivision
3, paragraph (e); and admission to places of amusement, recreational areas, or
athletic events and the use of amusement devices and athletic or other
facilities as provided for in Minnesota Statutes, section
297A.61, subdivision
3, paragraph (g), clause (1), are included in this exemption.
This exemption does not apply to the following sales or
purchases:
A. Building, construction,
or reconstruction materials purchased by a contractor or a subcontractor as a
part of a lump-sum contract or similar type of contract with a guaranteed
maximum price covering both labor and materials for use in the construction,
alteration, or repair of a building or facility.
B. Construction materials purchased by exempt
organizations or their contractors to be used in constructing buildings or
facilities which will not be used principally by the exempt
organizations.
C. Lease or purchase
of a motor vehicle, as defined in Minnesota Statutes, section
297B.01, subdivision
11, unless the lease or purchase meets the requirements for exemption under
Minnesota Statutes, section
297A.70,
subdivision 4, paragraph (c), or 297B.03, clause (11).
For purposes of this part, charitable, religious, or
educational purposes are referred to as "exempt purposes," and a nonprofit
organization, society, association, foundation, or institution organized and
operated exclusively for exempt purposes are referred to as an "exempt
organization."
Subp.
1a.
Construction materials purchased by an exempt
organization.
A. For purposes of this
part, "buildings or facilities which will not be used principally by an exempt
organization" means buildings or facilities that will be used by the exempt
organization for commercial purposes and not to carry out their exempt
functions. For example, construction materials purchased by an exempt
organization to be used in constructing a building which the exempt
organization will lease to another is not used principally by an exempt
organization even though the lease payments may be used for an exempt
purpose.
B. Materials that are
purchased by an exempt organization for use in the performance of its exempt
function are included in the exemption under Minnesota Statutes, section
297A.70,
subdivision 4. For example, construction materials purchased by an exempt
organization for use in its program to weatherize homes for low-income persons
may be purchased exempt by an exempt organization.
C. Unless the sale is specifically exempt
under Minnesota Statutes, section
297A.71,
the exemption from tax under Minnesota Statutes, section
297A.70,
subdivision 4, does not extend to building, construction, or reconstruction
materials purchased by a contractor under an agreement to erect a building or
to alter, repair, or improve real estate for an exempt organization, even if
the work contracted for is for use in the performance of the exempt
organization's exempt function. See part
8130.1200.
Subp. 2.
Charitable
organizations.
"Charitable" is used in its generally accepted legal sense to
mean a gift, to be applied consistently with existing laws, for the benefit of
an indefinite number of persons. Charitable includes relief of the poor,
underprivileged, and distressed, the care of the sick, the infirm, or the aged;
the erection or maintaining of public buildings and monuments; lessening of the
burdens of government; lessening of neighborhood tensions; elimination of
prejudice and discrimination; defense of human and civil rights secured by law;
providing of qualified low-income housing to qualified persons; and combating
of community deterioration and juvenile delinquency. To determine whether an
organization qualifies for the charitable exemption, the factors in items A to
F will be considered. Each case must be decided on its own particular facts,
and it is not essential that every factor mentioned in items A to F be present
for an organization to qualify as a charitable organization.
A. whether the stated purpose of the
undertaking is to be helpful to others without immediate expectation of
material reward;
B. whether the
entity involved is supported by donations and gifts in whole or in
part;
C. whether the recipients of
the "charity" are required to pay for the assistance received in whole or in
part;
D. whether the income
received from gifts and donations and charges to users produces a profit to the
charitable institutions;
E. whether
the beneficiaries of the "charity" are restricted or unrestricted and, if
restricted, whether the class of persons to whom the charity is available is
one having a reasonable relationship to the charitable objectives;
F. whether the dividends, in form or
substance, or assets upon dissolution are available to private
interests.
Subp. 3.
Religious organization.
"Religious" refers to an institution that conducts worship
services at regular intervals at an established place of worship that is owned,
leased, or borrowed for that purpose, and organizations affiliated with or
related to that institution, which exist exclusively for the furtherance of the
religious purposes of the institution. The specific merits of a particular
religion will not be compared or considered by the department when determining
whether an organization is an exempt religious organization for purposes of the
Minnesota sales and use tax. An organization claiming exempt status as a
religious organization must be able to affirmatively establish its right to the
exemption. Only if an organization clearly demonstrates that it is an
organization created exclusively for religious purposes will it meet the
requirements for tax-exempt status under Minnesota sales and use tax statutes.
The criteria the department will use to determine whether an organization is a
religious organization includes the criteria in items A to N. Each case must be
decided on its own particular facts and it is not essential that every factor
mentioned in items A to N be present for an organization to qualify as a
religious organization.
A. a distinct
legal existence;
B. a recognized
creed and form of worship;
C. a
definite and distinct ecclesiastical government;
D. a formal code of doctrine and
discipline;
E. a distinct religious
history;
F. a membership not
associated with any other church or denomination;
G. a complete organization of ordained
ministers ministering to their congregations;
H. ordained ministers selected after
completing prescribed courses of study;
I. a literature of its own;
J. established places of worship;
K. regular congregations;
L. regular religious services;
M. Sunday schools for the religious
instruction of the young;
N.
schools for the preparation of its ministers.
Subp. 4.
Educational
organization.
"Educational" means the instruction or training of
individuals to improve or develop their capabilities, or the instruction of the
public on subjects useful to the individual and beneficial to the community.
Examples of educational institutions are primary and secondary schools,
colleges and universities, and nonprofit professional and trade schools having
a regularly scheduled curriculum, a regular faculty, and a regularly enrolled
body of students in attendance at a place where the educational activities are
regularly carried on. Educational organizations include PTA, Boy Scouts, Girl
Scouts, Camp Fire Girls, YMCA, YWCA, 4-H Clubs, and youth athletic and
recreational programs such as Little League. Other educational institutions
include museums, zoos, planetariums, symphony orchestras, historical societies,
and other similar organizations.
An organization may be educational even though it advocates a
particular position or viewpoint, so long as it presents a sufficiently full
and fair exposition of the pertinent facts as to permit an individual or the
public to form an independent opinion or conclusion.
Subp. 5.
Organization and operational
tests.
An organization is not exempt as a charitable, religious, or
educational organization for sales and use tax purposes unless it is exempt
from federal income tax under section 501(c)(3) of the Internal Revenue Code as
defined in Minnesota Statutes, section
297A.61, subdivision
22. However, the determination of the Internal Revenue Service that an
organization is a nonprofit and tax-exempt organization under the Internal
Revenue Code, section 501(c)(3), for purposes of income taxation is not
controlling on the issue of whether the organization is an exempt organization
for sales and use tax purposes. Likewise, determinations by the Minnesota
Department of Revenue that an organization is an exempt organization for income
tax purposes does not, by itself, entitle the organization to an exemption from
payment of sales and use tax. In order to be an exempt organization, an
organization must be organized and operated exclusively for exempt purposes.
The following tests will be used in determining whether or not an organization
qualifies as an exempt organization:
A. An exempt organization may not be
organized or operated for the purpose of making a profit which inures to the
benefit of any private shareholder or individual. The organization must be able
to demonstrate by its articles of incorporation or if unincorporated, a
certified copy of its constitution and bylaws, and its financial statements
that:
(1) no part of the net earnings of its
activities inures to the benefit of any private shareholder, or individual
member, and no part of its assets will directly or indirectly be transferred,
in the event of dissolution of a corporation or termination of an
unincorporated association, to its members, founders, or
shareholders;
(2) it is supported
and maintained at least in part by gifts, grants, and contributions, that is,
one of its sources of support is donations, income from donations, and
contributions and dues of members for which they receive no direct benefit, or
it is supported by fees charged by an exempt organization for program services
if the fees are based on ability to pay and the exempt organization provides
services to individuals who would otherwise turn to government for such aid.
"Program services" means those activities that the exempt organization was
created to conduct and which, along with any activities commenced subsequently,
form the basis of the organization's current exemption from tax.
The fact that an organization may receive voluntary
contributions from those who benefit from its activities will not necessarily
prevent its being an exempt organization. But if it is determined that the
services rendered by the organization are conditioned upon the receipt of a
contribution the services rendered may be regarded as a commercial activity. If
this commercial activity is not subordinate to or incidental to the
organization's charitable, religious, or educational activities, the
organization does not qualify as an exempt organization since it is not
organized or operated exclusively for exempt purposes.
The fact that an organization is nonprofit does not
necessarily make it an exempt organization. The following are examples of
nonprofit organizations that may not qualify for exemption: organizations
attempting to influence legislation or participating in political campaigns;
fraternal or beneficial societies; clubs organized and operated for pleasure,
recreation, social, or other similar purposes; business associations; cemetery
associations that are not owned by religious organizations; civic and business
clubs; homeowner's associations; lake improvement associations; professional
and trade associations; retail and credit trade associations; trade unions;
volunteer employee benefit associations; and veterans organizations. Thus, such
organizations as Masons, Knights of Columbus, B'nai B'rith, League of Women
Voters, Chambers of Commerce, American Legion, alumni clubs, computer clubs,
fraternities and sororities, Jaycees, Lions Clubs, Odd Fellows, Orders of
Eastern Star, ski clubs, unions, and VFW Posts are not exempt
organizations.
B. If an organization, by the terms of its
articles, has purposes that are broader than the exempt purposes specified in
Minnesota Statutes, section
297A.70,
subdivision 4, the fact that its actual operations have been exclusively in
furtherance of exempt purposes is not sufficient to make it an exempt
organization. Similarly, an organization that is organized exclusively for
exempt purposes is not an exempt organization if a significant part of its
operations are not in furtherance of its exempt purposes.
C. An organization is not an exempt
organization if its attempts to influence legislation or intervene or
participate in a political campaign (including the publishing or distributing
of statements) cause it to lose its exemption from income tax under section
501(c)(3) of the Internal Revenue Code as defined in Minnesota Statutes,
section
297A.61, subdivision
22.
D. An exempt organization must
serve a public rather than a private interest. Thus, to gain exemption an
organization must establish that it is not organized or operated for the
benefit of private interests such as designated individuals, the founder or
organizer or their family, shareholders of the organization, or persons
controlled directly or indirectly by such private interests. An organization
which is organized or operated primarily for the benefit of its individual
nonexempt members rather than for the benefit of the general welfare does not
qualify for exemption.
E. The
assets of an exempt organization must be dedicated to an exempt purpose. An
organization is not an exempt organization if its net earnings are used in
whole or in part to the benefit of shareholders or individuals who have a
personal or private interest in the activities of the organization.
Subp. 6.
Derivative
organizations.
An organization may qualify derivatively for exemption if its
members are exempt organizations and the organization is organized and operated
exclusively to assist its member organizations in carrying out their exempt
purposes.
Subp. 7.
Exemption certificates.
Items A to C apply to the application for and the furnishing
of exemption certificates.
A. A
religious or educational organization must complete and furnish a certificate
of exemption when making exempt purchases of tangible personal property.
Charitable and youth athletic organizations must apply for and receive an
exempt status number and furnish that number when making exempt purchases of
tangible personal property. Religious and educational organizations may also
apply for and receive an exempt status number.
(1) Organizations that may furnish a
certificate without an exempt status number include churches, schools, and
educational organizations such as scouts, 4-H Clubs, YMCAs, YWCAs, and
PTAs.
(2) Organizations that must
furnish a certificate that includes an exempt status number include charitable
organizations such as hospitals, nursing homes, day activity centers, United
Way agencies, senior citizen groups, and youth athletic programs such as Little
League and hockey.
B. An
application for certificate of exempt status must be fully executed and
submitted with the necessary supporting documents. No charitable organization
making purchases shall be entitled to make those purchases exempt from the
sales and use tax unless a certificate of exempt status has been issued by the
commissioner of revenue.
C. If the
department is provided information sufficient to establish that an organization
is organized and operated exclusively for an exempt purpose, exemption will be
granted to the organization regardless of the purpose indicated in its
application for certificate of exempt status. For example, if an organization
claims exemption on the grounds that it is educational, exemption will not be
denied if it is, in fact, charitable.
Subp. 8.
Taxable sales to exempt
organizations.
Certain sales and rentals to exempt organizations remain
taxable. Exempt organizations still owe the sales tax when purchasing motor
vehicles or when renting motor vehicles. See subpart
1. Sales to exempt
organizations are taxable if the items purchased are not used in the
performance of the charitable, religious, or educational functions of the
exempt organization. The benefits of tax-exempt status are confined strictly to
the legal entity that has qualified for such status. Thus, sales to individuals
who are affiliated with an exempt organization are taxable even if the sales
would be exempt if made directly to the exempt organization.
Items A to D are examples of taxable sales.
A. Sales of all lawful gambling equipment and
supplies to any organization conducting gambling activities in accordance with
Minnesota Statutes, chapter 349, since this property is not used in the
performance of exempt functions.
B.
Furniture purchased by a church for use in its parsonage is exempt since it is
purchased for use by persons that administer religious activities to the
congregation. These items are not purchased for the personal use of any one
specific person but rather for the operation of a religious
organization.
C. Handbooks,
leaders' workbooks, and camping equipment purchased by a Girl Scout troop in
its own name and with troop funds are exempt. However, these items are taxable
if sold directly to an individual scout.
D. An exempt organization buys a set of golf
clubs for a retirement gift for a staff member. The golf clubs are taxable as
the gift is not furthering the exempt purpose of the organization.
Subp. 9.
Sales by exempt
organizations.
No organization is exempt from collecting the tax on taxable
retail sales. If an exempt organization makes taxable retail sales, it must
collect and remit tax on these sales unless the sales are exempt fund-raising
sales that meet the requirements of Minnesota Statutes, section
297A.70,
subdivision 13 or 14, or the sales are otherwise exempt under Minnesota
Statutes, chapters 297A and 297E.
A.
Examples of taxable sales:
(1) craft or
workshop items, including those sold by hospital auxiliaries and senior citizen
clubs;
(2) religious books and
cards;
(3) used, obsolete, or
surplus merchandise sold on a regular basis, such as surplus office equipment
or used library books;
(4) prepared
food;
(5) rental of personal
property on a regular or recurring basis.
B. Examples of nontaxable sales:
(1) land and buildings;
(2) membership dues, retreat fees;
(3) newspapers and magazines (published at
least quarterly);
(4) textbooks
sold to enrolled students and prescribed for use in a course of
study;
(5) tuition, including day
care and nursery school charges;
(6) occasional sales (See Minnesota Statutes,
section
297A.67,
subdivision 23.).
Subp.
10.
Volunteer fire departments.
Volunteer fire departments may qualify for exempt status if
they qualify as a charitable organization and are a separate organization from
the city. To be considered separate from the city, they must have either their
own constitution or articles of incorporation. If a volunteer fire department
has been approved for exempt status, its purchases are exempt in the manner
provided in items A and B.
A. Exempt
volunteer fire departments may purchase property exempt from sales tax and use
tax if it is to be used exclusively to prevent fires in the community or to
protect property in the community from fire. Subitems (1) to (6) are examples
of items that an exempt volunteer fire department may purchase exempt:
(1) fire trucks, ambulances, and
accessories;
(2) repair and
replacement parts for fire trucks and ambulances;
(3) fire protection clothing;
(4) hand tools;
(5) conversion equipment installed on an
existing fire truck if the equipment purchased is used for the prevention of or
protection from fire of property in the community;
(6) water used to fill pumper fire trucks.
The organization must be able to determine the amount of water that is used for
general purposes if water from the station house is used. If the amount of
water used for general purposes cannot be determined, the entire amount is
taxable. If the amount of exempt water can be determined, the fire department
could purchase all its water exempt from the sales tax and report use tax on
the portion used for general purposes or it could file a statement with the
seller claiming a partial exemption. This statement must certify:
(a) they are a volunteer fire
department;
(b) the percentage of
water that is used to fill pumper fire trucks; and
(c) a statement describing how this
percentage was determined. The seller should exempt the portion claimed and
charge sales tax on the remaining charge for water purchased.
B. Purchases made by an
exempt volunteer fire department that are not used exclusively to prevent fires
in the community or to protect property in the community from fire are taxable.
For example, a washing machine used to wash fire protection clothing is
taxable.
Subp. 11.
Related information.
A. Many
senior citizen groups are exempt from the sales and use tax. See Minnesota
Statutes, section
297A.70,
subdivision 4, paragraph (a), clause (2).
B. Sales of tangible personal property to
veterans organizations or their auxiliaries are exempt provided the property is
used for charitable, civic, educational, or nonprofit uses and the organization
is exempt from federal taxation pursuant to section 501(c), clause 19, of the
Internal Revenue Code. See Minnesota Statutes, section
297A.70,
subdivision 5.
C. Sales of
sacramental wine for sacramental purposes in religious ceremonies are exempt if
the wine is purchased from a nonprofit religious organization or a person
authorized to import sacramental wine without a license. See Minnesota
Statutes, section
297A.70,
subdivision 9.
D. Fees to camps or
other recreation facilities are exempt if they are owned and operated by an
exempt organization under section 501(c)(3) of the Internal Revenue Code as
defined in Minnesota Statutes, section
297A.61, subdivision
22, and are used for (i) services primarily for children, adults accompanying
children, or persons with disabilities, or (ii) educational or religious
activities. See Minnesota Statutes, section
297A.70,
subdivision 16. The sale of memberships to an association incorporated under
Minnesota Statutes, section
315.44
(YMCAs and YWCAs), or an organization defined in section
315.51(JCCs),
are exempt. This includes onetime initiation fees and periodic membership dues.
All separate charges for the privilege of having access to and the use of the
association's sports and athletic facilities are taxable. See Minnesota
Statutes, section
297A.70,
subdivision 12.
E. While purchases
of admissions provided for in Minnesota Statutes, section
297A.61, subdivision
3, paragraph (g), clause (1), are exempt when purchased by exempt
organizations, sales of admissions by exempt organizations are generally
taxable. The following sales of admissions in subitems (1) and (2) are exempt.
(1) Tickets or admission to artistic
performances sponsored by qualified tax-exempt organizations are exempt. This
exemption includes sales of tickets or admission by public schools, private
schools, colleges, and universities for concerts, plays, and similar artistic
events sponsored by the schools if the events are held at facilities owned by
the schools and the performance and the organization meet the requirements of
Minnesota Statutes, section
297A.70,
subdivision 10. See also Minnesota Statutes, section
297A.96.
(2) Tickets or admission to regular season
school games, events, and activities are exempt. Tickets or admissions to
games, events, and activities sponsored by the Minnesota State High School
League are exempt after June 30, 2006, and before July 1, 2011. See Minnesota
Statutes, section
297A.70,
subdivision 11.
F.
Receipts from bingo, raffles, and other gambling activities are subject to the
tax imposed on lawful gambling. See Minnesota Statutes, section
297E.02.
G. A nonprofit organization that is exempt
from federal income taxation under subchapter F of the Internal Revenue Code is
not considered to be a trade or business. Therefore, sales of items previously
used in the operation of the exempt organization may still qualify for the
isolated or occasional sale exemption. However, if an exempt organization
operates a trade or business that has little or no relationship to its exempt
purposes except to provide funds to carry out those purposes, these activities
are considered to be a trade or business. In these instances, the sale of any
equipment sold in connection with the trade or business operated by an exempt
organization is taxable. See Minnesota Statutes, section
297A.68,
subdivision 25.
Statutory Authority: MS s
14.388;
270.06;
270C.06;
297A.29
