Virginia Administrative Code
Title 23 - TAXATION
Agency 10 - DEPARTMENT OF TAXATION
Chapter 210 - RETAIL SALES AND USE TAX
Section 23VAC10-210-1070 - Nonprofit organizations; criteria for exemption

A. The Tax Commissioner has no authority to grant an exemption from the retail sales and use tax to a nonprofit organization. Only the General Assembly can enact legislation which will grant exemption from the tax.

The General Assembly has not enacted a general exemption from the retail sales and use tax for nonprofit organizations. The only nonprofit organizations exempt from the tax are those specifically set forth in §§ 58.1-608.1 and 58.1-609.1 through 58.1-609.13 of the Code of Virginia. These organizations are typically exempt from federal and state income taxes and serve educational, medical, civic, religious, charitable or cultural purposes. However, the vast majority of nonprofit organizations which are exempt from federal and state income taxes are not exempt from the Virginia retail sales and use tax because they do not qualify for a sales and use tax exemption set out in the Code of Virginia.

If a nonprofit organization is not exempt by Virginia statute from tax on the purchase of tangible personal property or taxable services, it must pay tax on those purchases used or consumed in its operations. If a supplier of the nonprofit organization is not registered to collect the tax or if the supplier is a registered dealer who fails to collect the tax, the nonprofit organization must report and pay the use tax on a Consumer's Use Tax Return, Form ST-7.

If a nonprofit organization regularly engages in selling tangible personal property, it is required to register as a dealer and collect and remit to the department the tax on retail sales unless it is specifically exempt by statute from collecting the tax.

B. Strict construction of the exemption. As indicated in 23VAC10-210-540, when determining which organizations qualify for exemption from the tax, the department is bound by court decisions to strictly construe laws granting the tax exemption. This means that a nonprofit organization must meet all of the requirements specified in the law in order to qualify for an exemption. For example, subdivision 15 of § 58.1-609.4 of the Code of Virginia exempts:

From July 1, 1991, through June 30, 1996, tangible personal property purchased for use or consumption by a nonprofit organization exempt from taxation under § 501(c)(3) of the Internal Revenue Code and organized exclusively to combat illiteracy by tutoring and training adults and by increasing community awareness of the illiteracy problem within the metropolitan Richmond area.

Under strict construction of the statute, to meet the criteria established for this exemption, an organization must (i) purchase tangible personal property during the period July 1, 1991, to June 30, 1996, (ii) have a § 501 (c)(3) designation from the Internal Revenue Service, (iii) be organized for the sole purpose of combating illiteracy in adults, and (iv) conduct operations in the metropolitan Richmond area. Organizations that provide programs to combat illiteracy as part of a larger operation do not qualify for this exemption. In addition, similar organizations created solely to combat illiteracy, but operating outside the metropolitan Richmond area, would not qualify for this exemption. Lastly, when an exemption "sunsets," it typically applies to a specific period and expires after a certain date. Purchases before or after that period are taxable. Therefore, in the example above, purchases made before July 1, 1991, or after June 30, 1996, would be taxable.