Sent via email
February 9, 2016
Re: Sales Tax Exemption
Dear :
The Iowa Department of Revenue (“Department”) has received your email regarding exemption certificates for the Central Community Historical Society (the Historical Society).
Facts as Provided in Your Letter
You are writing on behalf of the Historical Society to ask for a letter from the state showing that the Historical Society is exempt from paying Iowa sales and use tax on purchases for your museum. You provided a copy of a letter from the IRS showing that the Historical Society is exempt from federal income tax under section 501(c)(7) of the Internal Revenue Code (“Clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder.”).
You also asked for a list of items that would qualify for the exemption.
Exemption
Iowa does not provide a blanket exemption from sales tax for non-profit organizations, so the Historical Society’s status as a federally recognized non-profit does not, by itself, make your organization exempt from Iowa sales and use tax on its purchases. However, Iowa does provide an exemption for “[t]he sales price of goods, wares, or merchandise, or of services, used for educational, scientific, historic preservation, or aesthetic purpose sold to a nonprofit private museum.” Iowa Code § 423.3(21). A “museum” is defined as
an institution organized for educational, scientific, historical preservation, or aesthetic purposes which is predominately devoted to the care and exhibition of a collection of objects in a room, building, or locale. This collection must be open to the public on a regular basis, and its staff must be available to answer questions regarding the collection.
Iowa Admin. Code r. 701—17.24. “[A]n institution is not a “museum” unless it can be included in the “ordinary and usual public concept” of a museum, regardless of the abstract definition of the term within which the institution might fit.” Id. “Included within the meaning of “museum” are: art galleries, historical museums, museums of natural history, and museums devoted to one particular subject or one person.” Id.
According to your website your museum offers a number of permanent and rotating displays that capture the history of the DeWitt area. The displays include local Native American tools, military items from the Civil War through the present day, antique furniture, medical equipment, clothing, and school books. The museum also houses a genealogy catalogue index and research area which contains various Clinton County records from 1868 to the present day.
According to your website, you museum is open on Sundays from 1 p.m. to 4 p.m., Mondays 8 a.m. to 11:30 a.m., and Thursdays 8 a.m. to 10:30 a.m. Volunteers come in on Monday mornings to work on the displays.
The Central Community Historical Society Museum appears to be an institution organized for historical preservation or aesthetic purposes which is predominantly devoted to the care and exhibition of a collection of objects in a building. The collection is open to the public on a regular basis. It is not clear from the information on your website whether staff is available during the hours that the museum is open to the public to answer visitors’ questions.
If the museum has staff members available to answer questions during the hours the museum is open to the public, then it would meet the definition of a museum for the purposes of the exemption for private non-profit museums. If staff is not available to answer questions about the exhibits during the times the museum is open to the public, then it would not meet the definition and could not qualify for the exemption. Please note that if the Central Community Historical Society performs other functions, besides operating the museum, purchases made by the society for those other functions would not qualify for the exemption. Even when the Society is making purchases for the museum, only certain items will qualify for the exemption.
Exempt Items
Even if the museum does meet the definition, only items purchased for the purposes listed in the statute will qualify for the exemption. The Department does not have a set list of items that qualify for this exemption. The Department’s Rules do define “ educational” in connection with a separate exemption, and that definition can be applied to the exemption for non-profit museums as well. “ Educational” is defined as any of the following:
● The acquisition of knowledge tending to develop and train the individual.
● An activity that has as its primary purpose to educate by teaching.
● An activity that has as its primary objective to give educational instruction.
● An activity for which the educational process is not merely incidental. An activity where the purpose is systematic instruction.
Iowa Admin Code r. 701—17.1(6)“a”(3)“1.” The rule goes on to state that
The term “ educational purpose” is synonymous with “ educational undertaking” and, therefore, it can include recreational activities as well as an activity designed to offer culture to the public. Activities which are directly related to the educational process such as intramural sports and tests given to students or prospective students to measure intelligence, ability, or aptitude are considered educational for purposes of the exemption found in Iowa Code section 422.45(3). Municipal or civic science centers and libraries are also considered educational for purposes of the exemption.
Id. Goods or services that your museum purchases to fulfill any of these functions are for an educational purpose and would be exempt from sales and use tax.
The Department does not define “scientific,” “historic preservation,” or “aesthetic” purposes in its rules. Because these terms are not defined in the statute or the rule they are presumed to have their “ordinary and commonly understood meaning.” Kay-Decker v. Iowa State Bd. of Tax Review, 857 N.W.2d 216, 223 (Iowa 2014). Any goods, wares, merchandise, or services that the Historical Society purchases for the museum for the purposes of historic preservation, or for scientific or aesthetic purposes would be exempt from sales and use tax. The Historical Society can purchase these items for the museum using an exemption certificate as described below. If you need any help determining whether the purchase of specific items qualifies for the exemption, please feel free to contact me, and I will be happy to help.
Exemption Certificate
The Iowa Department of Revenue does not provide organizations with exemption letters showing that the organization qualifies for an exemption from sales and use tax. Instead, Iowa requires that purchasers provide a completed Exemption Certificate to a seller when making an exempt purchase. The seller, in turn, is required to keep the certificate on file. Buyers are generally required to provide an exemption for each exempt purchase. However, buyers are allowed to provide a single exemption certificate that is valid for up to three years to sellers from whom they frequently purchase similar tax exempt items or services. A copy of the required Exemption Certificate is available on the Department’s website at:
https://tax.iowa.gov/sites/files/idr/forms1/IowaSalesTaxExemptionCertificate%2831014%29.pdf
You simply need to complete and print this form, and give it to the seller when you are making an exempt purchase for the museum. An instruction sheet for filling out the form is also available on the Department’s website at:
https://tax.iowa.gov/sites/files/idr/documents/78637.pdf
I hope this information has been helpful to you. Please remember that this letter is an informal opinion based only on the facts you provided and on the current law. In the future, the Department could take a position contrary to that stated in this letter. Any written advice or opinion rendered to members of the public by Department personnel that is not pursuant to a Petition for Declaratory Order under 701 IAC 7.24 is not binding upon the Department. If you have any additional questions regarding this matter please do not hesitate to contact me.
Sincerely,
Ben Clough
Policy Section
Taxpayer Services and Policy Division
Iowa Department of Revenue
(515) 725-2176
ben.clough@iowa.gov