Policy letter; educational institution; Sept18,2007
Topic Code: E016Educational Institution Document Reference: 07300066
September 18, 2007
Re: Sales and purchases of your organization, your letter, 08-05-2007 Your recent letter to the Iowa Department of Revenue has been given to me for reply. Please allow me to introduce myself. My name is Darwin Clupper. I am a technical tax specialist with the Department of Revenue’s Policy Section. My particular area of concentration is Iowa sales and use tax law.You inquire on behalf of the Herbert Hoover Presidential Library Association (HHPLA). HHPLA is a 501(c) (3) nonprofit organization which exists to foster the “ideals and philosophies of Herbert Hoover, thirty first President of the United States.” It does this by “providing support to the Presidential Library and National Historic Site in West Branch, IA.” Most of HHPLA’s funding comes from contributions and members’ dues, but some money comes in from sales of books by or about Herbert Hoover, book royalty payments, sales of clothing with HHPLA’s logo, and sales of tickets for “educational entertainment” and a yearly banquet. HHPLA’s major purchases are those typical of a not-for-profit organization. It buys office supplies, utility services, printing and postage services, leases computers and other office equipment, and pays for travel tickets, insurance, and website maintenance. Your letter asks if either sales by or purchases of HHPLA are exempt from Iowa tax. Concerning what it sells, these sales are likely exempted from tax by § 423.3(78) of the 2007 Iowa Code which excludes from tax and reads (in relevant part) as follows: 78. The sales price from sales or rental of tangiblepersonal property, or services rendered by any entity where the profits from the sales or rental of the tangible personal property, or services rendered are used by or donated to a nonprofit entity which is exempt from federal income taxation pursuant to section 501(c) (3) of the Internal Revenue Code, a government entity, or a nonprofit private educational institution, and where the entire proceeds from the sales, rental, or services are expended for any of the following purposes: a. Educational. b. Religious. c. Charitable. . . This exemption does not apply to the sales price from games of skill, games of chance, raffles, and bingo games as defined in chapter 99B. This exemption is disallowed on the amount of the sales price only to the extent the profits from the sales, rental, or services are not used by or donated to the appropriate entity and expended for educational, religious, or charitable purposes. I think it is clear that HHPLA is engaged in activities which are “educational” in nature. One note of warning, the Department does not consider membership banquets to be educational in nature; in the event of audit, HHPLA would be assessed Iowa sales tax on any sums spent for that purpose.Concerning sales to HHPLA, all sales of tangible personal property and all furnishing of taxable services are presumed to be subject to tax initially. Exemptions from tax are matters of legislative grace; they are granted almost always by statute and occasionally as a matter of constitutional necessity. The burden is on the one claiming an exemption to clearly show his or her right thereto. American College Testing Program, Inc. v. Forst, 182 N.W.2d 826 (Iowa 1970); Ballstadt v. Iowa Department of Revenue, 368 N.W. 2d 147 (Iowa 1985); and Iowa Movers and Warehousemen's Association v. Briggs, 237 N.W. 2d 759 (Iowa 1976). That stated, Iowa sales tax law does permit some not-for-profit private organization to buy goods and taxable services exempt from tax. The statutes which allow this are set out in §§ 423.3(17) through 423.3(30) of the Iowa Code. None of those subsections can be, consistent with the principle of strict construction, be interpreted to include HHPLA within the ambit of their protection, in my judgment. Thus, purchases by your organization for your own use are taxable even though, admittedly, it does good work. A final note, sales to the Library itself would be exempted from tax by § 423.3(17) of the Code because the Library is an “educational institution,” but an organization such as HHPLA does not fit within the meaning of that term, see American College Testing Program, Inc., supra.In closing, I must issue my usual warning. Please be advised that this letter is an informal opinion and is only applicable to the factual situation referenced and to the statutes in existence at the time of issuance. Because of this, the Department could, in the future, take a position contrary to that stated in the letter.Sincerely,Darwin D. ClupperTax Specialist, Policy SectionCompliance Division515-281-3670