1. 501(c)(3) status is determined by the IRS. It is a federal designation for a nonprofit organization
meaning that usually a 501(c)(3) organization doesn’t have to pay federal income tax. It has nothing
to do with sales tax.
2. Corporation status is determined by each state. In Virginia it is regulated by the State Corporation
Commission. Once incorporated, that organization is considered a separate legal entity. It has
nothing to do with sales tax.
3. “Nonprofit” or “tax exempt” status usually refers to federal or state income tax, not sales tax.
Most nonprofits in Virginia are exempt from federal and state income tax but not from sales tax.
1. In Virginia, Sales and Use tax is regulated by the Virginia Department of Taxation. The main office is in Richmond. Most of the branch offices have been closed because of Virginia’s budget problems, but there are still some local offices open in larger localities.
2. Sales and Use tax is generally 4.5% of a gross sale with 3.5% going to the state and 1% going to the locality in which the organization is located.
3. If an organization buys items and then resells those items to the public, that group should obtain a resale exemption certificate from the Department of Taxation. This will prevent the group from paying sales tax when it buys the items for resale. For example, an MG group that buys plants and then resells them for a profit can obtain a resale exemption certificate. A copy of the certificate can be filed with the vendor selling the plants to the MG group and then the MGs won’t have to pay sales tax when it buys the plants.
4.
Usually a sales and use tax report is required to be filed and the tax
paid on the 20th of each month. The tax paid will be on any
sales for the entire prior month. After a while, usually a year, an organization
can request that the Department of
Taxation change the filing period from monthly to quarterly. Then reports will
only have to be filed and paid four times per year rather than twelve times.
5. Each sale doesn’t necessarily have to have 4.5% tax added on to the sale. But the sale does have to be reported and paid unless the group is exempt (see below for exemptions).
Some examples:
A cookbook can be sold for $10.45 (10.00 sale + .45 tax)
A cookbook can be sold for $10.00 and the tax can be backed out. ($10.00 \ 1.045 = 9.57 sale + .43 tax)
6. Nonprofit organizations in Virginia are NOT automatically exempt from sales and use tax. The only way to be exempt from sales and use tax is apply for a Sales and Use Tax Exemption. You can apply on-line but there are conditions which must be met. Read more about this subject at the Virginia Department of Taxation's site dealing with Sales & Use Tax Exemptions for non-profits: -http://www.tax.virginia.gov/site.cfm?alias=SUTExemption#RetailSales
A nonprofit group in Virginia, which does not regularly sell items for a business, may have sales at three or less occasions within a calendar year without having to register as a dealer and pay sales tax. However, any sale made at a fair, flea market, festival, or carnival is not considered an “occasional sale” and sales tax must be paid on any sale at any of these venues regardless of the number of sales. Each of the
three or less occasions must be started and finished within 30 days. For example, an MG group which sells
500 cookbooks within 30 days could consider that as one of its occasional sales during a year. If an MG
group sells its 500 cookbooks over the course of a calendar year, then that is not considered an occasional sale and sales tax must be paid.
Note: Currently there are some sales tax proposals before the General Assembly that might be voted into law and become effective July 1, 2004. One proposal would eliminate ALL occasional sales from sales tax exemptions. Another proposal would INCREASE the number of occasional sales allowed to
nonprofit organizations. I would suggest that anyone interested call the Department of Taxation sometime
this spring to verify whether the number has changed.
Anyone needing guidance or clarification on this issue can call:
Virginia Department of Taxation
Office of Tax Policy
Nonprofit Service Division
804-377-3712 (NOT a toll free number)
The Department of Taxation website is not very helpful but the Code of Virginia and the Virginia Tax Administrative Code sites have all the regulations which can be downloaded.
Here are some sites that you might like to check out concerning Virginia Tax Codes of interest:
Nonprofit organizations; criteria for exemption
Nonprofit organizations; exempt transactions