REQUEST LETTER
02-004
NAME
ADDRESS
Dear NAME,
We are seeking and advisory
opinion on exemption from sales tax for our non profit 501(c)(3) organization,
ORGANIZATION). Because the facility
began operation on DATE time is of the
essence for your response to this request.
We also ask that you allow your decision to be retroactive to DATE.
As a point of clarification
ORGANIZATION is the non profit management organization that leases and operates
the publicly-owned COMPANY. The COMPANY
was built with a combination of public funds ######) and donated funds from
private sources ######).
The stated purposes of this
organization are listed in the enclosed Articles of Incorporation and in the
letter to the Internal Revenue Service dated DATE.
Briefly, the stated purpose
is to provide year-round ice as a means of improving physical fitness; provide
for general recreational, educational, and competitive opportunities to the
general public; promote hockey, figure skating, speed skating and other ice
sports; and ensure the community is served at affordable prices.
This letter will list the
specific services offered at the COMPANY and request exemption for each
service. We ask the Tax Commission to
consider granting an exemption to the activities that are charitable and
educational as well as those activities that fall under our stated purposes but
are not completely charitable or educational because these activities serve to
subsidize other charitable and educational activities.
Activities and Services:
1.
Public skating and
skate rental
· Sessions are held daily from noon to 2 p.m. and 6:30 –
8:30 p.m. Cost is ###### for adults and
###### for children under 12 and seniors.
Skate rental is ###### if needed.
Of all available ice time per week, approximately 32% is scheduled for
use by the general public.
· The
percentage of COMPANY total annual operating expenses spent on public skating
is 32%; revenues from public skating are approximately 30% of total annual
revenues.
· Public
sessions should be considered charitable because they are offered at a
discounted price in relation to the actual cost of offering the service. In addition COMPANY is providing a wholesome
activity that improves general fitness, thus improving the health of the
community. We offer no admission charge
to people who wish to watch public skating sessions as a charitable and
educational activity.
· Learn-to-skate classes will be taught year-round for
people of all ages and abilities. The
format will follow the United States Figure Skating Association guidelines:
each sessions will run for six weeks and consist of six classes 30 minutes in
length. Classes will be divided by age
and ability. Cost will be approximately
###### per person with a 10% discount for additional family members. While these classes are on the ice no other
ice skating is permitted.
· School
Outreach classes will be taught at the ice arena as part of the Utah Core
Curriculum. Areas of instruction
include The Science and Physics of Skating, Skating for Your Health, and
Creative Movement on Ice. This
educational series is partially funded through the FOUNDATION and subsidized by
COMPANY by all other programs offered at the arena, allowing the facility to
offer this series at no charge to the schools.
· The
percentage of COMPANY total annual operating expenses spent on classes is 11%;
revenues from all classes are approximately 11% of total annual revenues.
· All
classes are educational and therefore should be exempt from sales tax. In addition, many classes are subsidized by
other programs to reduce the cost to the customer, thus making the activity
charitable.
· A limited selection of equipment, food and drinks are
available at COMPANY as a service for skaters and spectators. Equipment consists of items such as skate
laces, gloves and hockey puck; food and drinks consist of soup, snack items,
fruit juices, hot chocolate and carbonated beverages.
· the
percent of COMPANYannual operating expenses spent on concession and food
supplies is 11%; revenues from concession and food sales is approximately
10.5%.
· Although
this activity is not educational, it could be considered a charitable service
provided by the arena to its customers, and as a subsidy for other charitable
and educational services.
· Hockey
leagues will be able to schedule ice time in the evenings and on weekends. Ice rental costs COMPANY per hour. Leagues will be available for people aged 5
– adult, for all abilities. Equipment
will be furnished by each player, with a limited amount of equipment available
at the arena for a nominal rental fee.
All players will receive instruction on amateur hockey rules and
regulations associated with the sport and wear regulation safety
equipment. No unsupervised play will be
allowed.
· the percentage of COMPANY annual operating expenses spent on
hockey leagues is 31%; revenues from hockey is approximately 29%.
· The ice
arena’s stated purposes include promoting ice sports such as hockey and
offering competitive opportunities to the community. Hockey should be considered educational thus exempt because the
instruction provided to the players include tools such as teamwork, discipline
and goal-setting. Trained coaches and
assistant will ensure these educational concepts are taught. In addition, a percentage of revenues from
hockey fees will fund low-cost equipment rental for qualified low-income
participants.
· Figure and
Speed skaters will have scheduled morning and afternoon hours for training and
lessons. These times will be used by
amateur athletes and recreational skaters of all ages and abilities who want to
improve their abilities and prepare for competition. Fees are ##### for admission to a one-hours session. Instruction will be provided at ###### per
hour by trained coaches who are also employees of COMPANY. This discounted instructional fee is
provided as a charitable service.
· The
percentage of COMPANY total annual operating expenses spent on figure and speed
skating is 8%; revenues from these disciplines are approximately 2.5% of total
annual revenues.
· The ice
arena’s stated purposes include promoting ice sports such as figure skating and
speed skating. Instruction and ice time
in these disciplines should be considered educational and thus exempt because
the instruction provided to the skaters include teaching concepts such as
discipline, lifetime activity and goal-setting. Trained coaches and assistant will ensure these educational
concepts are taught.
· Admission fees will be charged to exhibitions, hockey
games, tournaments, skating shows and special events. Fees will be analyzed on an event-by-event basis and determined
by setting a break-even limit.
· The
percentage of COMPANY total annual operating expenses spent on events is 6%;
revenues from events are approximately 2.5% of total annual revenues.
· Events are
part of the educational and charitable purposes of the facility. No event will charge fees that exceed costs
of production, staffing, equipment rental, and security.
· less than
1% of annual operating expenses are from skate sharpening.
· In order to provide quality instruction and a safe environment
we need to ensure ice skates are properly sharpened.
· A high
initial investment in equipment needed to sharpen skates typically requires a
business to charge ##### or this service.
COMPANY is charging a minimal cost of ##### per pair as a basic service,
thus sharpening should be considered a charitable activity.
·
Advertising in the facility provides annual revenues that help defray
the cost of operation. Because no
single user group pays for the actual cost of operation the cost must be
covered by other means.
· 1% of
annual operating expenses are covered by advertising sales.
·
Advertising allows local businesses to participate in a charitable
organization and support the organization’s programs while gaining recognition
for their support. The revenues should
be exempt because they are part of the organization’s stated purpose of
providing year-round indoor ice and making certain the operation is
cost-effective.
· 14% of annual operating expenses are from charitable donations
and therefore should be considered exempt.
Thank
you for considering this request.
Please call if you need further information at PHONE, or fax to #####.
RESPONSE LETTER
April 25, 2002
NAME
ADDRESS
RE: Advisory Opinion – COMPANY
Dear NAME,
We have received your request for an advisory opinion
that addresses whether the COMPANY), a 501(c)(3) organization, is exempt from
collecting and remitting Utah sales tax on its sales. From your letter, we understand that COMPANY is the management
organization that leases and operates the publicly-owned COMPANY. COMPANY has already applied for and received
from the Tax Commission a Utah religious/charitable sales tax exemption number
(Number #####). The Tax Commission
assigned this exemption number because the Internal Revenue Service determined
that COMPANY qualifies for 501(c)(3) designation.
You
have also supplied COMPANY Articles of Incorporation, which include a statement
of your organization’s purposes and powers.
In addition, you have provided a copy of a January 30, 1996, letter to
the IRS in which you described COMPANY operations and purposes when applying
for the 501(c)(3) designation. The
operations and purposes described in these two documents match or are related
to the purposes you describe in your request letter to us. Because COMPANY listed activities match or
are related to the purposes and powers described in its Articles of
Incorporation and its application for 501(c)(3) status with the IRS, these
activities will be considered tax exempt to the extent allowed under Utah law,
as explained below.
Under Utah Code Ann. §59-12-104.1(1), a sale made by a
religious or charitable institution or organization is exempt from sales or use
tax if the sale is made in the “conduct of the institution’s or organization’s
regular religious or charitable functions or activities.” Accordingly, any activity that falls within
COMPANY functions or activities, as described in its Articles of Incorporation
and application to the IRS for 501(c)(3) designation, will not be subject to
Utah sales or use tax, unless the Legislature has provided an exception to the
exemption. However, should COMPANY
engage in an activity outside those described in these documents, any such
activity may be subject to taxation.
For example, should COMPANYdecide to sell ski clothing from its
facilities, the sale of such clothing is not associated with the purposes of
operating the ice arena as described in these documents. Accordingly, COMPANY would be required to
collect and remit sales tax on such sales.
Sales of skate laces, gloves and hockey pucks, on the other hand, are
sufficiently related to COMPANY charitable purpose to be exempt rom sales tax.
As mentioned above, there are certain exceptions to the
religious/charitable exemption. From
the activities you list, there is one exception that will affect COMPANY. Utah Code Ann. §59-12-104(12)(a)(i) provides
that a meal sold by a church or a charitable institution is subject to sales
tax if the meal is available to the general public. Because the food sold by COMPANY is available to skaters and
spectators, it is considered available to the general public. Accordingly, COMPANY is responsible to collect
and remit sales tax on its food sales even though the organization is
recognized as a tax-exempt religious/charitable organization. In addition, we note that such food sales
are also subject to Utah’s tourism or restaurant tax, as provided for in Utah
Code Ann.§59-12-603(1)(b).
We understand that the facility began operations on
DATE. This advisory opinion applies to
all sales made by COMPANY, regardless of the date of sale. If you have erroneously collected sales tax
on sales that should have been exempt, you are nevertheless required to remit
those taxes to the Tax Commission.
Should you have any other questions, please contact us.
For
the Commission,
Marc
B. Johnson
Commissioner
MBJ/KC
02-004