Policy Letter; Linn County Association For Retarded Children September 26, 1996
Topic Code: T031Tax Certifying & Tax Levying Body (ST) Document Reference:
Policy letter; Linn County Association For Retarded Children September 26, 1996
Section 422.45(5), Code of Iowa, 1966, provides: "5. The gross receipts of all sales of goods, wares or merchandise used for public purposes to any tax-certifying or tax-levying body of the state of Iowa or governmental subdivision thereof, including the state board of regents, board of control of state institutions, state highway commission and all divisions, boards, commission, agencies or instrumentalities of state, federal, county or municipal government which derive disbursable funds from appropriations or allotments of funds raised by the levying and collection of taxes, except sales of goods, wares or merchandise used by or in connection with the operation of any municipally-owned public utility engaged in selling gas, electricity or heat to the general public." (Emphasis supplied)
To qualify for the exemption two requirements must be fulfilled: (1) The association for Retarded Children must "derive disbursable funds from appropriations or allotments of funds raised by the levying and collection of taxes," and (2) The Association must qualify as an agency, board, commission, division or instrumentality of the county or municipal government. The first requirement is satisfied because the Association derives approximately $28,000 from the allotment of funds raised by the levying and collection of taxes by Linn County. The next issue presented is: Whether the Linn County Association for Retarded Children is an agency or instrumentality of county government? At the outset it is emphasized that Section 422.45(5), Code of Iowa, 1966, is an exempting statute and must be strictly construed. If there is any doubt upon the question, it must be resolved against the exemption and in favor of taxation. Chicago, Burlington & Quincy Railroad Co. vs. Iowa State Tax Commission, Iowa 142 N.W. 2d 407, 412 (1966); Community Drama Association of Des Moines vs. Iowa State Tax Commission, 252 Iowa 854, 862, 109 N.W. 2d 23 (1961); National Bank of Burlington vs. Huneke, 250 Iowa 1030, 1035, 98 N.W. 2d 7 (1959).No Iowa case has decided the question whether an Association for Retarded Children qualifies as an agency or instrumentality of county government. In Unemployment Compensation Commission of North Carolina vs. Wachovia Bank and Trust Co., 215 N.C. 491, 496, 2 S.E. 2d 592 (1939), the North Carolina Supreme Court articulated five tests to determine what constitutes an agency of government in boarderline cases:1. It was created by the government.
2. It is wholly owned by the government.
3. It is not operated for profit.
4. It is previously engaged in the performance of some essential governmental function.
5. The proposed tax will impose an economic burden upon the government or materially restrict it in the performance of its duties.
Although the standards articulated by the North Carolina Supreme Court concerned an instrumentality of federal government, there is no compelling reason to make a distinction for agencies at the county level. Two of the standards adopted in the Wachovia Bank and Trust Co. case are absent. First, the Linn County Association for Retarded Children was not created by the government but incorporated as a non-profit corporation. Secondly, the Association is not wholly owned by the county. It is not governed by the county but governed by certain enumerated officers pursuant to the Association's Articles of Incorporation. Although the work of the Association supplements the function of Linn County, this alone would not constitute the Association as an agency of county government. Therefore, we are of the opinion that the Linn County Association for Retarded Children is a special type of non-profit organization which does come within the meaning of agency, board, commission, division or instrumentality of county government. Consequently, the Association is not exempt from sales tax for its purchases of goods, wares or merchandise.Very truly yours, David A. Affeldt