Policy letter; educational institution; Mar10,2000
Topic Code: E016 Educational Institution Document Reference: 00300040
March 10, 2000
Magical Beginnings Early Childhood Center526 E. Jefferson Street,Corydon, IA 50060Dear :Re: Educational institutions, your letter, 02-23-00.Your recent letter to the Iowa Department of Revenue and Finance 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's Policy Section. My particular area of concentration is Iowa sales and use tax law.You have written to inquire if purchases of your Early Childhood Center are exempt from Iowa sales and use tax. My answer would be that those purchases are almost certainly subject to rather than exempt from Iowa tax, and the remainder of this letter is an explanation for this conclusion. The one exemption from sales and use tax which could be applicable to the purchases of your Early Childhood Center is set out in Iowa Code § 422.45(8) which excludes from Iowa tax: 8. The gross receipts of all sales of goods, wares, or merch andise, or services, used for educational purposes to any private nonprofit educational institution in this state. The exemption provided by this subsection shall also apply to all such sales of goods, wares or merch andise, or services subject to use tax under the provisions of chapter 423.The meaning of the term " educational institution" within the context of § 422.45(8) of the Code has been examined once by the Iowa Supreme Court. This was done in the case of American College Testing Program, Inc. v. Forst, 182 N.W.2d 826 (Iowa 1970). In that case the Court observed: One ordinarily thinks of an educational institution as a school, college or university with students, faculty and an established curriculum. Lois Grunow Memorial Clinic v. Oglesby (1933), 42 Ariz. 98, 22 P.2d 1076, 1078, and citations; In Re Estate of Goetz (1966), 8 Ohio Misc. 143, 218 N.E.2d 483, 485. See: section 1.151-3(c) Federal Income Tax Regulations. We have broadened the concept to include libraries, Webster City v. Wright County (1909), 144 Iowa 502, 123 N.W. 193, and county school systems, McColl v. Dallis County (1935), Iowa 434, 262 N.W. 824. American College Testing at p. 827.Information contained in the documents accompanying your letter clearly shows that the Early Childhood Center is a private, nonprofit organization. However, other information, set out in those same documents, argues against the conclusion that your Center is an “ educational institution”. Your “Certificate of License” states that the Early Childhood Center is licensed under Chapter 237A of the Iowa Code. According to § 237A.1(4), the following are not licensed under Chapter 237A:a. An instructional program administered by a public or nonpublic school system accredited by the department of education or the state board of regents or a program provided under section 279.49 or 280.3A.b. A church-related instructional program of not more than one day per week.c. Short-term classes held between school terms.The typical preschool does not provide enough of the type of instruction provided by a school to qualify as an “ educational institution” for the purposes of § 422.45(8), and the Magic Beginnings Early Childhood Center would appear to be a typical preschool. Therefore, its purchases are not exempt from Iowa tax. An example of the type of preschool program which would qualify as an “ educational institution” is described in the Iowa Supreme Court case of Livingston v. Davis, 50 N.W.2d 592, 243 Iowa 21 (1951). A copy of that case is included with this letter for your study, if you wish. In closing, I must issue my usual warning. The opinions which I have expressed in this letter are informal only. Because of this, the Department could, in the future, take a position contrary to them.Sincerely,Darwin D. ClupperTax Specialist, Policy SectionCompliance Division515-281-3670