96-170
Response November 27, 1996
Request
Attention: XXXXX
Utah State Tax Commission
210 North 1950 West
Salt Lake City, Utah 84134
Re: Request
for Advisory Opinion
XXXXX
Educational Foundation
Gentlemen:
The purpose of this correspondence is to request a
written advisory opinion from the tax commission as to the taxability, for Utah
sales tax purposes, of sales of used ski equipment by the XXXXX Educational
Foundation in their annual ski swap.
FACTS:
The XXXXX Educational Foundation is an exempt
organization under section 501(C)3 of the Internal Revenue Code. The
organization has applied for and been granted an exemption from sales tax by
the state of Utah. (Letter from the State Tax Commission attached for your
information)
Each year the foundation sponsors a ski swap in
XXXXX. Persons wishing to sell either new or used skies consign the skies to the
foundation. The skies are sold and the funds are divided between the seller and
the foundation. In the past, the foundation has been collecting sales tax on
these sales. Over the past two years (the swap is held in November) the sales
volume has been $436,623 and $353,018.
OUR POSITION:
After having contacted the tax commission and having
done some research on our own, we believe that we are not liable for collecting
sales tax on the ski swap sales. To support this position we are relying on
R865-19S-43, which states that to qualify for exemption from sales tax an
organization must: 1. Be recognized by the Internal Revenue Service as exempt
from tax under section 501(C)3 of the internal revenue code, and 2. Must
collect sales tax on unrelated business income as defined in section 513 of the
internal revenue code.
We believe that the ski swap falls into the
exception described in internal revenue regulation 1.513-l(c)(1) as not being
unrelated trade or business income because it is not "regularly carried
on." Regulation section 1.513-1 defines unrelated trade or business income
as income derived by an organization from any unrelated trade or business
regularly carried on by it, less deductions and etc. Section 1.513-1 goes on to
define unrelated trade or business income and certain exceptions:
"Therefore, unless one of the specific exceptions of section 512 or 513 is
applicable, gross income of an exempt organization subject to the tax imposed
by section 511 is includible in the computation of unrelated business taxable
income if (1) it is from trade or business, (2) such trade or business is
regularly carried on by the organization, and (3) the conduct of such trade or
business is not substantially related (other than through the production of
funds) to the organization's performance of its exempt functions."
Regulation section 1.513-l(C) states:
"Regularly carried on -- (1) General principles. In determining whether
trade or business from which a particular amount of gross income derives is
'regularly carried on,' within the meaning of section 512, regard must be had
to the frequency and continuity with which the activities productive of the
income are conducted and the manner in which they are pursued."
1.513-l(C)2 goes on to state: "Where income producing activities are of a
kind normally conducted by nonexempt commercial organizations on a year-round
basis, the conduct of such activities by an exempt organization over a period
of only a few weeks does not constitute the regular carrying on of trade or business."
CONCLUSION:
It is our position that since the ski swap lasts
only several days each year, it is not considered a "trade or
business" unrelated to the exempt purpose of the foundation.
We request that you provide us with a written
advisory opinion regarding the taxability, for sales tax purposes, of sales
made by the ski swap. (I have enclosed a power of attorney if you should need
to discuss this matter with me)
Thanks for your time and attention.
Sincerely,
XXXXX
XXXXX
Advisory opinion - Ski swap by XXXXX Educational
Foundation
Dear XXXXX,
We
have received your request for sales tax information pertaining to sales of ski
equipment sold by a charitable organization.
We offer the following:
The
XXXXX Educational Foundation may sell items tax free so long as those sales are
within the conduct of the charitable organization’s regular functions or
activities. You correctly note that
sales that are unrelated the foundation’s charitable activities are taxable.
"Unrelated trades or businesses" is
defined by section 513 of the IRS Code.
Therefore, if the foundation is required to include receipts from its
sales in its taxable income for federal income tax purposes, the sales that
generated those receipts are ineligible for the sales tax exemption unless some
other exemption applies.
Assuming
that these sales are related to the organization’s charitable purpose, we
consider these sales to be tax-free sales by the foundation so long as the
foundation collects and accounts for the proceeds. If any sale is made directly by a donor of ski equipment, that
sale will be taxable unless some other exemption applies.
Please
let us know if you have further questions.
For
the Commission,
Joe
B. Pacheco,
Commissioner