NOTICE: Under IC 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of this document will provide the general public with information about the department's official position concerning a specific issue.

Sales and Use Tax - Purchases Made by a Nonprofit

Authority: IC 6-2.5-2-1; IC 6-2.5-5-21; IC 6-2.5-5-26; IRC § 501(c)(3); 45 IAC 2.2-5-25; 45 IAC 2.2-5-58; Sales Tax Information Bulletin #10 (December 2018).

A taxpayer ("Nonprofit") is seeking an opinion as to whether it is eligible for the exemption for sales made by nonprofits from the Indiana sales tax.

Nonprofit is exempt from federal income tax under Internal Revenue Code ("IRC") § 501(c)(3). Nonprofit primarily sells religious items such as bibles, books, worship materials and other religious resources. Nonprofit is a publishing ministry of a church organization, but it is an independent unit of the church. Despite this, Nonprofit states that it is exempt from federal taxation under the umbrella of a group exemption letter issued in 1988 by the Internal Revenue Service to its parent church organization. However, Nonprofit has since changed its name from the name listed on the letter to a different name.

Nonprofit provided several documents purporting to demonstrate its exempt status, including the group exemption letter from the Internal Revenue Service (including an appendix that includes Nonprofit listed as part of the exempt organization), Nonprofit's Minnesota Department of Revenue's "Certificate of Exemption" (form ST3), and an "Affidavit of Publication" showing that they published their change of name in a Minnesota newspaper which lists Nonprofit's legal name and DBA name.

Indiana imposes an excise tax, known as the state gross retail tax ("sales tax"), on retail transactions made in Indiana. IC 6-2.5-2-1(a). Absent a specific exemption, the person who acquires property in a retail transaction is liable for the tax on the transaction and is required to pay the tax to the retail merchant as a separate added amount. IC 6-2.5-2-1(b).

To that point, Nonprofit asks that the department issue a ruling addressing whether it is eligible for the exemption from the sales tax under IC 6-2.5-5-26, the exemption generally applicable to sales made by nonprofit entities. IC 6-2.5-5-26 states the following:

This statute essentially provides for two separate exemptions, one with a time limitation on the amount of days that tangible personal property may be sold, and one without. The Department's regulation at 45 IAC 2.2-5-58, interpreting IC 6-2.5-5-26(b), provides in relevant part:

The Department's guidance regarding this exemption is found in Sales Tax Information Bulletin #10 (December 2018), which summarizes the exemption as follows:

The "30-day rule" exemption from collecting sales tax contained in IC 6-2.5-5-26(a) would not apply to Company, because, although they do not state this explicitly, selling books and other materials over the internet will most likely mean that the taxpayer's sales occur for more than thirty days in a calendar year. This means that if they sell tangible personal property for more than thirty days, they would either have to be eligible for the exemption under subsection (b), or not at all.

Applying the four part test in subsection (b), there is no question that Nonprofit is not an organization operated predominantly for social purposes. Accordingly, Nonprofit satisfies the exemption's second requirement set forth by IC 6-2.5-5-26(b)(2). However, three questions, all of which are dispositive, remain. First, the department must answer the question of whether Nonprofit is an organization described in section 21(b)(1) of IC 6-2.5-5, the first requirement set forth by IC 6-2.5-5-26(b)(1). If Nonprofit is such an organization, then it remains to be determined whether the property Nonprofit sells is designed and intended primarily for the organization's religious purposes in order to satisfy 6-2.5-5-26(b)(3), and finally whether the property sold is not designed or intended primarily for use in carrying on a private or proprietary business in order to satisfy 6-2.5-5-26(b)(4). If these three issues are answered in the affirmative, then Nonprofit may sell the property exempt from sales tax without any limitations on the number of days they may be sold.

Turning to the question of whether Nonprofit is an organization described in Section 21(b)(1) of IC 6-2.5-5, the organizations described in IC 6-2.5-5-21(b)(1) include:

Nonprofit meets the first requirement of section 21(b)(1)(B) as they are a nonprofit corporation under IC 6-2.5-5-21(b)(1)(B)(vi). Furthermore, Nonprofit is "organized and operated exclusively for religious . . . purposes," - thus meeting the "exclusive purpose" test - and evidence presented by Nonprofit shows that no part of its income is "used for the private benefit or gain of any member, trustee, shareholder, employee, or associate" - thus meeting the "private benefit" test.

Having established that Nonprofit is an organization described in Section 21(b)(1), the next part of the test in IC 6-2.5-5-26(b) is that "the property sold is designed and intended primarily . . . for the organization's . . . religious purposes . . . ." pursuant to IC 6-2.5-5-26(b)(3). The following examples are provided in 45 IAC 2.2-5-58(c) to show how this exemption would apply to various scenarios:

The items that Nonprofit mentions - bibles, books, worship materials, and other religious resources - fit within the criteria of IC 6-2.5-5-26(b)(3) since they appear to be primarily intended to further the religious purposes of the organization. Therefore, these items would meet IC 6-2.5-5-26(b)(3).

Regarding the fourth requirement of IC 6-2.5-5-26(b), that the property sold is not designed or intended primarily for use in carrying on a private or proprietary business, neither the statute nor the Department's regulations explain what is meant by private or propriety business activity. As it pertains to the exemption for purchases made by governmental agencies and subdivisions, 45 IAC 2.2-5-25(c) provides the following:

There are for-profit Christian bookstores or for-profit bookstores that sell Christian books and music. However, because the sale of the bibles, books, worship materials, and other religious resources are being used to promote the charitable purpose and mission of the religious Nonprofit and the resulting funds do not inure to the private benefit of any individual, Nonprofit is not operating as a private business. Therefore, all elements of IC 6-2.5-5-26(b) are met, and the sales of the tangible personal property would be exempt from sales tax.

Nonprofit is eligible to make sales exempt from Indiana sales tax under IC 6-2.5-5-26, as Nonprofit:

This ruling is issued to the taxpayer requesting it on the assumption that the taxpayer's facts and circumstances as stated herein are correct. If the facts and circumstances given are not correct, or if they change, then the taxpayer requesting this ruling may not rely on it. However, other taxpayers with substantially identical factual situations may rely on this ruling for informational purposes in preparing returns and making tax decisions. If a taxpayer relies on this ruling and the Department discovers, upon examination, that the fact situation of the taxpayer is different in any material respect from the facts and circumstances given in this ruling, then the ruling will not afford the taxpayer any protection. It should be noted that subsequent to the publication of this ruling a change in statute, regulation, or case law could void the ruling. If this occurs, the ruling will not afford the taxpayer any protection.