98-071
Response January 4, 1999
REQUEST LETTER
Dear Ms. Rees:
We request an advisory opinion from the Commissioners
concerning the sales tax exemption of NON-PROFIT ORGANIZATION in Utah. Having
researched this issue, we conclude that THEY should be exempt from sales tax.
We have, however, been instructed by the Utah State
Tax Commission that the individual PARTS within the State are subject to sales
tax. We disagree with this conclusion.
In the Utah Code Section 59-12-104 it states:
The following sales and uses are exempt from the taxes
imposed by this chapter: (8)(a) - [S]ales made to or
by
religious or charitable institutions in the conduct of
their
regular
religious or charitable functions and activities.
The ORGANIZATION PARTS within the State are charitable
institutions under Internal Revenue Code (IRC) section 501(c)(3). IRC section 508 states that section
501(c)(3) organizations must Anotify
secretary that they arc applying for recognition of section 501(c)(3)
status." Such notice is filed by submitting a properly completed and
executed Form 1023 The IRS then issues a determination letter to the applying
organization to evidence its 501(c)(S) status.
Section 508(c), however, lists some mandatory
exceptions to the federal notice requirement. It states that "churches,
their integrated auxiliaries, and conventions or associations of churches, or any
organization . . . the gross receipts of which in each taxable year are
normally not more the $5.000," are not required to file Form 1023;
therefore, they do not receive a determination letter. These organizations are
nonetheless exempt and must continue to meet the requirements of section
501(c)(3) the same as organizations holding determination letters.
Sales tax exemptions are administered within the State
generally by requiring the payment of the sales tax at point of sale, and then the
501(c)(3) organization must apply for a refund. Pursuant to Utah Code Section
59-12-104.I(3)(b)(I) the State Tax Commission has established a procedure for
applying for a sales tax refund, The organization is required to secure an
'~N" number from the State by providing proof of 501(c)(3) status. That is
generally handled by producing a determination letter from the IRS; however, in
some circumstances, as we discussed above, no determination letter is
available. The State of Utah has recognized this exception with regard to
churches without a determination letter. The absence of a letter is not an
obstacle to issuing an N number when a ORGANIZATION involved. ORGANIZATION PARTS within the State are exempt from sales
taxes, and thus the State of Utah must establish procedures to allow these
units to secure their rightful refunds.
ORGANIZATION 2 sponsors In excess of #####
ORGANIZATION PARTS in the State of Utah. All of these PARTS are exempt
organizations under section 501(c)(3) of the IRC. These units are structured as
has been recommended by the ORGANIZATION COUNCIL, This structure has been
approved at the national level, and an IRS determination letter was issued to
the National Council which I have attached. There is no doubt that the
individual troops are active 501(c)(3) organizations pursuant to this approved
structure.
We request your opinion as to whether PARTS in the
state are exempt from sales taxes.
More importantly, we ask that a procedure be established pursuant to
your statutory behest to allow these troops to secure sales tax refunds. May we
suggest two alternatives.
1. We can
instruct all the PARTS, PARTS 2, and PARTS 3 (estimated to exceed #####
different organizations) within the State to request sales tax exempt status
from the State. Each PART will then secure an AN@ number and begin filing monthly refund claims, or
2. A
procedure could be adopted by the Commission allowing the exempt sponsoring
organization to apply for the refund for the individual PARTS within the State.
We would suggest that the latter alternative
accomplishes the desired result with very little administrative concern.
Otherwise the Tax Commission will need to support a substantial increase in
refund claims.
Sincerely
RESPONSE
LETTER
January 4, 1999
NAME
ADDRESS
RE: Advisory
Opinion - Sales Tax Exemption for Religious and Charitable Organizations as it
Relates to ORGANIZATION PARTS.
Dear NAME,
We have received your request asking the Commission to
reverse one of its current policies that affects individual ORGANIZATION PARTS
in Utah. Under Utah Code Ann. '59-12-104(8), sales made by or to a religious or
charitable organization may be exempt from Utah sales and use tax. In order to qualify for this exemption, Utah
Admin. Code R865-19S-43(A) states that the Aorganization
must be recognized by the Internal Revenue Service as exempt from tax under
Section 501(c)(3) of the Internal Revenue Code.@
Individual ORGANIZATION PARTS have apparently not
applied for nor received recognition of Section 501(c)(3) status from the
Internal Revenue Service (AIRS@). Thus, the
Commission has previously determined that the sales tax exemption does not
apply to an individual ORGANIZATION PART
unless either the ORGANIZATION COUNCIL or the ORGANIZATION 2 authorizes the use of its own exempt status
to the ORGANIZATION PART. To our
knowledge, neither of these organizations has authorized use of its exempt
status to an individual PARTS. Nor have
you indicated that such an authorization has occurred.
Instead, you assert that each PART automatically meets
the requirements for Section 501(c)(3)
status on its own and that it may do so even though it does not apply for and
receive recognition of this status from the IRS. You cite, as authority for that conclusion, Section 508(c) of the
Internal Revenue Code (AIRC@). Section 508(c) provides that an entity may
meet the requirements of Section 501(c)(3) status yet need not apply for and
receive recognition of that status under certain circumstances. However, even in this situation, an entity
must meet the requirements of Section 501(c)(3) before that entity can qualify
for the Section 508(c) exception.
The Commission does not believe that the individual
PARTS comprise juridical entities that are legally created and recognized. Accordingly, a PART is not the type of
entity subject to Section 501(c)(3) status, even should all other statutory
requirements be present. When an entity
does not meet the requirements of Section 501(c)(3), it need not look to
Section 508(c) for an exception from recognition. In such a case, there exists no Section 501(c)(3) recognition for
which to receive a Section 508(c) exception.
Thus, the Commission affirms its previous position on
this issue. Individual PARTS are not
entities eligible for exemption from the Utah sales and use tax. However, the ORGANIZATION 2 may authorize
the use of its own exempt status to individual ORGANIZATION PART. Should the ORGANIZATION 2 wish to formally
recognize the PARTS as part of its exempt ACTIVITY activities, you may
telephone the Commission at ##### to confirm this recognition and coordinate
the application of the sales and use tax exemption to the individual PART.
Please contact
us if you have any other questions.
For the Commission,
Joe B. Pacheco, CPA
Commissioner
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