REQUEST LETTER
03-005
NAME
ADDRESS
I am writing to you on behalf of my client, COMPANY. We are requesting a Letter Ruling that the activities of COMPANY, Inc. meet the requirements of Rule R85-19S-43 and Utah Code Ann. Sections 59-12-104 and 59-12-104.1, making their sales exempt from collection of sales taxes.
COMPANY collects and remits sales taxes under account number ######, and will continue to do so until determined to be exempt. This account is current on all required reports and payments. COMPANY also has an approved sales tax exemption number, ######, which it uses to make tax-exempt purchases and/or apply for refunds of sales taxes paid under the applicable Rules and Codes Sections.
I will use the attached description of the facts and circumstances surrounding the operation of the COMPANY to show how it meets the requirements of the Rules and Code Sections mentioned above. We ask that you review these facts and circumstances and issue a Letter Ruling that the COMPANY is exempt from collecting and remitting sales tax. When we receive your Letter Ruling, COMPANY will cease collection of sales tax and will report and remit any and all sales taxes collected prior to the receipt or effective date of your ruling, whichever is later.
You may contact me directly at the above address, email or phone numbers with any questions or requests for additional information. You may also contact the manager of the COMPANY, NAME at
COMPANY
ADDRESS
PHONE
Thank you for your assistance in this matter.
Attachment
Description of facts and circumstances of the operation of COMPANY.
COMPANY. is an IRS-recognized Section 501(c)(3) tax-exempt charitable organization. Its constitution calls for it to operate a STORE that sells items donated to it and left on consignment by authorized ORGANIZATION military and civilian personnel. All proceeds remaining after operating expenses are paid are given to welfare/charitable recipients and ORGANIZATION service and recreational activities as determined by the COMPANY Board of Trustees.
COMPANY relies on volunteers to maintain its operations. There are currently 46 volunteers who donate their time on a regular basis, which averages 839 hours per month. The COMPANY is open to receive donations/consignments on each Monday and is open for sales each Wednesday and Thursday. The volunteers do all of the necessary work to receive, inventory, tag, track and sell the items. Volunteers operate the cash registers and perform all customer support functions. The COMPANY has a part-time bookkeeper and a manager who are paid on a contract basis. These two paid positions provided support to the Board of Trustees through operations oversight and financial reporting, but they have very little direct customer interaction and do not take part in the day-to-day operation of the COMPANY. They work approximately 40 and 60 hours per month respectively.
Because the volunteer hours used to perform the exempt functions of the COMPANY. greatly exceed those of the part-time paid staff, I believe that their operation meets the criteria of 26 U.S.C.A Section 513(a) (1). This sections indicates that when "…substantially all the work in carrying on such trade or business is performed for the organization without compensation…," the operation is not considered an unrelated trade or business.
Under R865-19S-43B, a charitable organization is only required to collect and remit sales tax on sales income arising from unrelated trades or businesses. As the operation of COMPANY is not considered to be an unrelated trade or business per Sect. 513, their sales should be exempt from the collection of sales tax. Because the sales function of COMPANY, is made in the conduct of its regular charitable activities, COMPANY, also meets the requirements of Utah Code Ann. Sections 59-12-104(8)(a) and 59-12-104.1(1), making their sales exempt from the collection of sales tax.
RESPONSE LETTER
DATE
NAME
ADDRESS
Dear NAME,
We have received your request for a private letter ruling concerning the taxability of sales made by COMPANY. COMPANY is recognized by the Internal Revenue Service (“IRS”) as a Section 501(c)(3) tax-exempt organization. You state that, in accordance with its constitution and by-laws, COMPANY operates a thrift store that sells not only donated items, but items left on consignment by authorized ORGANIZATION military and civilian personnel. On this basis, COMPANY has already applied for and received a sales tax exemption number from the Utah State Tax Commission. You ask whether, under these circumstances, sales made by COMPANY are exempt from taxation under the charitable and religious exemption provided in Utah Code Ann. §59-12-104(8)(a).
Because COMPANY is recognized by the IRS to have qualified as a Section 501(c)(3) entity, any sales it makes in the conduct of its regular functions and activities, as described in COMPANY’S constitution and by-laws, are considered exempt from Utah sales and use tax. The exceptions provided in Section 513(a) of the Internal Revenue Code and incorporated by reference in Utah Admin. Rule R865-19S-43(B) need only be examined should a Section 501(c)(3) entity engage in a trade and business unrelated to its regular functions and activities as evidenced by its constitution and by-laws.
You have provided the COMPANY by-laws that indicate that operating a thrift shop that sells consignment items is a regular function and activity of COMPANY. For this reason and based on the information provided, COMPANY’S sales are exempt from taxation because they are made in the conduct of an activity that is a regular function and activity of a Section 501(c)(3) entity. There is no need to examine whether the operation of the thrift store is an “unrelated” activity that meets one of the listed exceptions.
Should you have any other questions, please contact us.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/KC
03-005