ARCHDIOCESE OF DUBUQUE (1981)(F)(ST)

Topic Code: E016Educational Institution, N101Nonprofit Organization (ST), School Districts on Schools (ST)U071Use Tax Exemption (ST)          Document Reference:

FINDINGS OF THE TAX REVIEW COMMITTEE IN THE MATTER OF THE ARCHDIOCESE OF DUBUQUE AND BUREAU OF EDUCATION OF THE ARCHDIOCESE OF DUBUQUE Docket No. 80-114-6B-A

The Tax Review Committee of the Iowa Department of Revenue has met to consider and evaluate the Protest submitted by the Archdiocese of Dubuque and the Bureau of Education of the Archdiocese of Dubuque [hereinafter Protestor Archdiocese and Protestor Bureau, respectively]. Based upon the Protest, case law, relevant rules and statutes, prior departmental orders, and pursuant to rule 730-7.11(17A) IAC, the Tax Review Committee [hereinafter Committee] issues its Findings.

The Archdiocese of Dubuque and the Bureau of Education of the Archdiocese of Dubuque have their home offices at 1229 Mount Loretta, Dubuque, Iowa 52001. For purposes relevant herein, Protestor Archdiocese is a nonprofit corporation organized and existing to act in the capacity of spiritual and civil administrator of the Catholic church in a thirty county area of northeast Iowa. Protestor Bureau is a nonprofit corporation formed in the year 1925 and having filed renewal articles of incorporation in 1956. The Protestor Bureau provides the supervision and administration of the sixty grade schools and eleven high schools engaged in private parochial education and sponsored by the Archdiocese of Dubuque.

The Bureau of Education works through the Diocese superintendent of schools appointed by and serving at the pleasure of the Archbishop. The superintendent provides the day to day administration and supervision required. As a result, the findings involved herein would be applicable to the superintendent as well as the Bureau when the elements involved are used primarily for educational purposes. The Bureau's functions include: fixing educational standards to meet state accreditation requirements, establishing curriculum, selecting textbooks, establishing school calendars, adopting and promulgating building renovation and planning, preparing teacher's manuals, holding regular meetings with local school boards and teachers, and in general performing a similar function to that performed in the public school systems of the state of Iowa.

The Bureau itself maintains no regular faculty nor does it have a regularly enrolled body of students. Protestor Bureau, however, does perform the executive and administrative duties connected with the above mentioned parochial school, each of which is itself an educational institution.

The Protestor Bureau and Protestor Archdiocese were audited by the Iowa Department of Revenue for consumer use tax for the period January 1, 1975 through December 31, 1979. This audit resulted in a certified assessment for consumers use tax dated April 21, 1980, in the amount of $8,061.57 including tax, interest and penalty. Protestor Bureau and Protestor Archdiocese filed a timely Protest stating the amount attributable to the Bureau to be in controversy. Protestor Bureau and Protestor Archdiocese contend that the Bureau is exempt from tax as a private, nonprofit educational institution pursuant to Iowa Code § 422.45(8) (1979).

Iowa Code § 422.45(8) (1979) lists as exempt from tax:

The gross receipts of all sales of goods, wares, or merchandise, 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 merchandise, or services, subject to use tax under the provisions of chapter 423.

Department of Revenue rule 730-17.11(422,423) IAC, states in part:

Purchases for sales by schools — sales tax. Goods, wares or merchandise purchased by any private nonprofit educational institution in the state and used for educational purposes shall be exempt from sales tax.

A private nonprofit educational institution consists of a school, college, or university with students, faculty and an established curriculum, a group of qualifying organizations acting in concert, or libraries.

As may be seen from the above Code section and rule, the schools administered by the Bureau would, of course, be exempt from taxation. The question posed to the Committee in this matter is whether the Bureau, an administrative adjunct to the schools involved, is itself a private nonprofit educational institution allowing it to remain exempt from tax.

The only Iowa case of assistance to the Committee in deciding this matter is American College Testing Program, Inc. v. Forst, 182 N.W.2d 826 (1970). In that case the Court discussed the definition of an educational institution as follows:

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. Dallas County (1935), 220 Iowa 434, 262 N.W. 824. [Emphasis supplied]

... The county school system as it existed in 1935 was an administrative adjunct to the county schools. It was directly involved in the educational process furnishing guidance to and supervision over the local school districts.

As may be seen from the above, the Court specifically mentioned and reinforces its earlier decision in the McColl v. Dallas County case, supra. It would appear to the Committee that from a reading of the case involved, Protestor Bureau would fall within the same classification. Here, as there, Protestor Bureau exists as an administrative adjunct to the exempt schools. It also appears to be directly involved in the educational process and essential to the end results.

Further reinforcing the above conclusions is the Court's statement in the American College Testing Program, Inc. v. Forst case, supra at page 828, wherein the Court provides a necessary condition for inclusion within the exemption. The Court there stated regarding American College Testing Program, Inc., that, "it is not a cooperative function of a group of exempt institutions acting in concert." [emphasis supplied] In the instant matter, it would appear that Protestor Bureau fits this requirement. The institutions would be acting in concert as that is the very basis for the existence of the Bureau.

Also of interest to the Committee, though not a controlling factor herein, is the positions taken by the Federal Internal Revenue Service in the following revenue rulings: REV. RUL. 63-208, C.B. 1963-2, 468, REV. RUL. 63-209, C.B. 1963-2, 469.

The Committee is further impressed by the position taken in a letter ruling, dated July 29, 1959, from the Commissioner of the Internal Revenue Service to the National Catholic Welfare Conference. In that letter, it is determined that the functions of the office of a Catholic diocese and school superintendent "bear such a relation to the Diocese and schools that those functions are considered to be an integral part of the schools' educational activities. Since the diocesan schools qualify for exemption, the office of the diocesan superintendent is to the same extent and in the same manner entitled to the exemptions which are accorded to the schools."

The above rulings by the Federal government were issued in conjunction with a regulation defining a "nonprofit educational organization" substantially the same as that effected by the Iowa Department of Revenue in rule 730-17.11 (422, 423) IAC. In fact, the Iowa rule is patterned after the federal regulation as to the definition of educational institution or organization.

Based upon the above discussion and in reliance upon the materials cited, the Committee finds the Protestor Bureau to be so closely associated with those tax exempt organizations it administers as to be itself exempt.

In conclusion, the Committee has decided that that portion of the assessment attributed to the Bureau should be cancelled. Protestor Bureau and Protestor Archdiocese's Protest in this matter should be sustained and the audit so adjusted. 

__________________________________         
________________________ 
Harry M. Griger                             Cynthia Eisenhauer 
Special Assistant Attorney General          Chairperson 
Tax Review Committee                        Tax Review Committee 
__________________________________ 
John J. Scieszinski 
Tax Policy Officer 
Tax Review Committee 
                                            November 25 1980 
                                            ------------------- 
                                            Date
RE: ARCHDIOCESE OF DUBUQUE AND THE BUREAU OF EDUCATION OF THE ARCHDIOCESE OF DUBUQUE Consumer Use Tax Protest Docket No. 80-114-6B- A

Francis J. O'Conner

200 Dubuque Building

Dubuque, IA 52001

Dear Mr. O'Conner:

The Tax Review Committee of the Iowa Department of Revenue has met to consider the protest filed in the above-referenced matter. The Committee has determined that the assessment of tax, penalty, and interest should be cancelled as it relates to the Bureau of Education. Enclosed please find a copy of the Committee's findings in this matter. It is believed the findings are self explanatory, but should you have some question, please feel free to contact me for an explanation.

In the near future, the Department's auditors will revise the earlier audit to split off those elements attributable to the Bureau. At that point, it is hoped that an equitable termination of this matter will be reached.

Please advise me of your position in light of the enclosed Findings within thirty (30) days of the date of this letter. If the Protestor is in disagreement with the Findings and chooses to pursue the Protest, the Department will file an Answer to the Protest pursuant to rule 730-7.12(17A) IAC, thereby initiating contested case proceedings. The hearing officer of the Department will then notify all parties of a time and place for an evidentiary hearing to be held on this matter.

Thank you for your time and attention in this matter. If I may be of further service, please feel free to contact me at your earliest convenience.

Very truly yours, John J. Scieszinski Tax Policy Officer 515-281-8032