TAXES - SALES; NONPROFIT ORGANIZATIONS;

You asked for a list and legislative history of sales tax exemptions for nonprofit organizations. You also asked (1) how many nonprofit organizations are exempt now and either originally or at the earliest date for which data is available and (2) for the annual revenue loss from exemptions for the most recent and an earlier year for which data is available.

SUMMARY

There are nine sales tax exemptions that apply to nonprofit organizations, but the most comprehensive are those for sales of goods and services to or by (1) nonprofit hospitals, nursing homes, rest homes and residential care homes and (2) nonprofit organizations and cemetery companies that qualify for federal tax-exempt status. Although many of the exemptions were first adopted in the 1970s, the exemptions for nonprofit hospitals and charitable and religious organizations date from the inception of the sales tax in 1947. Most of the exemptions were narrower when they were created than they currently are. Some that originally applied only to nonprofit organizations have been expanded to also cover for-profit entities.

According to the most recent statistics published by the IRS, there are 10,696 organizations in Connecticut that are exempt from taxation under federal tax law. These are the organizations that are eligible for the nonprofit organization exemptions from state sales tax. We have requested information on the historical number of such organizations from the Department of Revenue Services (DRS) and will forward the information when we receive it.

According to DRS, the total revenue loss for sales tax exemptions for charitable and religious organizations was $ 110. 3 million for FY 2001-02 and $ 72. 5 million for FY 1994-95, the earliest year for which DRS has readily accessible data.

EXEMPTIONS

Nonprofit Hospitals, Nursing Homes, Rest Homes, And Residential Care Homes

Exemption. Sales of tangible personal property or services (other than patient care services) to and by nonprofit charitable hospitals and state-licensed, nonprofit nursing homes, rest homes, and residential care homes, for their exclusive use (CGS § 12-412(5)).

Legislative History. A version of this exemption has been in the sales tax law since it was first enacted in 1947. The 1947 exemption applied only to property, not services, and only to nonprofit charitable hospitals, not to the other institutions.

PA 75-567 extended the exemption to services sold to and by nonprofit charitable hospitals.

PA 93-44 excluded patient care services subject to the state tax on patient care services from the exemption. PA 93-332 extended the exemption to cover state-licensed, nonprofit nursing homes, rest homes, and homes for the aged.

PA 94-175 made it clear that tangible property transferred incidental to a hospital’s “patient care services” are excluded from the exemption and subject to the sales tax. (The patient care services tax was suspended for two years in 2001. )

PA 97-112 replaced homes for the aged with residential care homes.

Nonprofit Organizations and Cemetery Companies

Exemption. Sales of tangible personal property or services to organizations that are exempt from federal taxes under IRS Code sections 501(c)(3) and (13), with proper paperwork to prove federal exemption status (CGS § 12-412 (8)). The exemption applies to nonprofit organizations set up for the following purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and prevention of cruelty to animals or children. It also applies to nonprofit cemetery companies.

Legislative History. A version of this exemption has been in the sales tax law since it was first enacted in 1947. The 1947 exemption applied only to sales of property, not services, and exempted only sales to charitable and religious organizations. It did not require organizations to be federally tax-exempt or to show any certificate to a seller to obtain the exemption.

PA 75-567 extended the exemption to services sold to such organizations.

PA 93-74 limited the exemption to sales to nonprofit organizations that got at least 75% of their funding from the state or a municipality. But PA 93-332 repealed the change before it could take effect. Instead, it specified that, for the purpose of determining the exemption for sales to charitable and religious organizations defined under 501(c)(3) of the Internal Revenue Code, any municipal or state funds the organizations received would be considered private donations.

PA 95-359 established the exemption in its current form by limiting it to sales to organizations that have letters from the U. S. Treasury Department determining that they are tax-exempt under Sections 501(c)(3) or 501(c)(13) of the Internal Revenue Code. The act also required that, for a sale to be tax-exempt, the organization give the retailer a copy of the federal determination letter or a copy of the state exemption permit issued before July 1, 1995 under prior state law. The organization was also required to show a DRS form certifying that the relevant document has not been revoked and that the goods or services being bought will be used exclusively for the purposes for which the organization was established. PA 95-359 also made the organization liable for the tax if the goods or services are used for other purposes.

Municipalities, Libraries, And Library Support Groups

Exemption. Municipal publications, property sold by public libraries, property sold at auction by municipalities, and book sales by library support groups (CGS § 12-412(24)).

Legislative History. The original 1973 exemption (PA 73-299) applied to sales of the following for less than $ 5: municipal publications, property sold by public libraries, and property sold at auction by municipalities. PA 95-160 extended the exemption to include book sales by library support groups and removed the $ 5 exemption limit.

Youth And School Support Groups

Exemption. Sale of items costing up to $ 20 each by (1) a Connecticut eleemosynary (charitable) organization to support youth activities that the organization is formed to sponsor or (2) accredited elementary and secondary schools to support the school or its students’ organized activities (CGS § 12-412 (26)).

Legislative History. The original exemption, adopted in 1973 (PA 73-452), specified that the youth support groups had to be nonprofit. In addition, the exemption applied only to items costing $ 2 or less.

PA 85-462 eliminated the requirement that covered youth support groups be nonprofit and instead required them to be charitable organizations and increased the per-item sales price limit to $ 5. PA 90-255 increased the per-item limit to $ 20.

Low- and Moderate-Income Housing Property

Exemption. Property used for operating or incorporated into low- and moderate-income housing (1) built under the sponsorship of, and owned and operated by, nonprofit housing organizations or housing authorities or (2) owned or sponsored by a mutual housing association at a location conveyed to it by the Department of Housing and Urban Development (HUD) before September 1, 1995 (CGS § 12-412(29)).

Legislative History. PA 75-613 created the original exemption. It applied to tangible personal property used in the operation of housing for low- and moderate-income people built under the sponsorship of a nonprofit housing organization and owned or operated by it.

PA 97-243 made it clear that services provided to low- and moderate-income housing facilities operated by, not just owned by, nonprofit housing organizations are exempt. It required the organization to obtain a letter of determination from the DRS commissioner that the housing facility has met exemption requirements and, when making an exempt purchase, give the retailer a copy of the DRS determination letter and a certificate that the property or services are to be used or consumed in the development, construction, rehabilitation, renovation, repair, or operation of the identified housing facility.

PA 97-315 extended the exemption to any project sponsored by a mutual housing association (MHA) on a site that HUD conveyed to it before September 1, 1995. (MHAs are nonprofit organizations that develop and operate housing projects for low- and moderate-income people who are members of the association and own the project collectively. ) The exemption applied to services used to develop, construct, renovate, or operate a project.

PA 99-173 extended the exemption to tangible personal property used in low- and moderate-income housing projects owned and operated by public housing authorities, and services they obtain to develop and operate these projects.

Senior Citizen Centers

Exemption. Sales of personal property or services to senior citizen centers (CGS § 12-412 (35)).

Legislative History. The original 1979 law (PA 79-400) exempted sales to senior citizen centers, but only if local tax assessors approved the centers for the exemption. PA 89-190 eliminated the requirement for approval by local assessors.

Health Care Facility Gift Shop Sales

Exemption. Sales of items costing $ 100 or less by Department of Social Services-approved nursing, rest, residential care, and convalescent homes and adult day care centers, as long as (1) items are sold through a gift shop in the facility and (2) profits are retained for benefit of the facility’s patients or users (CGS § 12-412(56)).

Legislative History. The original exemption (PA 86-397) applied only to nonprofit nursing and convalescent homes, only to items costing $ 15 or less, and only if the gift shop is operated by a nonprofit auxiliary organization and the profits are retained for the residents’ benefit.

PA 87-311 increased the per-item exemption limit to $ 100 and extended the exemption to include nonprofit adult day care centers approved by the commissioner on aging.

PA 93-74 eliminated the requirements that the facility be nonprofit and that the facility’s gift shop be run by a nonprofit auxiliary organization.

Nonprofit Organization Bazaars And Similar Events

Exemption. Sales by nonprofit organizations at up to five one-day bazaars, fairs, picnics, tag sales, or similar events during each calendar year (CGS § 12-412(95)).

Legislative History. The exemption was enacted in 1997 (PA 97-316) and has not been changed.

Historical Societies

Exemption. Sales of tangible personal property by historical societies (CGS § 12-412 (94))

Legislative History. The exemption was enacted in 1997 (PA 97-316) and has not been changed.

NUMBERS OF EXEMPT ORGANIZATIONS

The state eliminated its separate certificate requirement for nonprofit organization tax exemptions in 1995 and, since then, has recognized any organization that has a federal tax exemption under Section 501(c)(3) or (13) of the federal tax code. As described above, Section 501(c)(3) organizations must be organized and operated exclusively for one or more of several listed purposes and none of their earnings must inure to any private shareholder or individual. The eligible purposes are: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to animals or children. Section 501(c)(13) exempts nonprofit cemetery companies.

According to the most recently published IRS statistics (March 2002), 10,696 organizations in Connecticut were recognized as tax-exempt in 2001, and therefore eligible for sales tax exemptions. We are awaiting the number of such organizations that were eligible for exemptions in an earlier year and will forward it to you when we receive it from DRS.

REVENUE LOSSES

Table 1 shows revenue losses to the state from charitable and religious organization exemptions in FYs 1995 and 2002. Data for years before 1995 is not readily accessible, according to Michael Galliher of DRS’ Research Division. The two years given below are comparable because the sales tax rate was 6% in both years.

Table 1: Charitable and Religious Sales Tax Exemption

Revenue Losses

Source: Department of Revenue Services

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