Location:
TAXES - SALES;
Scope:
Connecticut laws/regulations; Other States laws/regulations;

OLR Research Report


January 11, 2011

 

2011-R-0003

SALES TAX EXEMPTIONS: COMPARISONS WITH OTHER STATES AND REVENUE LOSS

By: Rute Pinho, Associate Analyst, Office of Legislative Research

Evelyn Arnold, Budget Analyst I, Office of Fiscal Analysis

You asked questions about certain sales tax exemptions in Connecticut and other states. The questions and answers are listed separately below.

MOTOR VEHICLE AND BOAT TRADE-INS

Connecticut sales tax applies only to the difference between the sale price of a new motor vehicle or boat and the value of any trade-in, and not to the full cost of the new vehicle or boat (CGS 12-430 (4)).

Do surrounding states have the same exemption?

A search of state tax department websites found that seven surrounding states (Maine, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont) have a similar exemption for the trade-in allowance applied towards the sales price of a motor vehicle or boat. Rhode Island exempts the sale of new or used boats or vessels from its sales tax entirely.

What was the revenue loss from the exemption in the past three years?

The state lost approximately $124 million in total revenue from FY 08 to FY 10. The revenue loss was approximately $49.9 million in FY 08, $33.3 million in FY 09, and $40.9 million in FY 10.

The Department of Revenue Services (DRS) collects data on this tax exemption claim through the Sales and Use Tax Return form. This estimate is based on summaries of this data, provided in the DRS Annual Reports for 2007-08, 2008-09, 2009-10 for each respective fiscal year.

BOAT OWNERS

Connecticut exempts winter boat storage and boat maintenance and repair services from sales and use tax (CGS 12-407 (2)(m), 12-408 (l)(D), and 12-411(1)(D)). The boat storage exemption applies from November 1 through April 30, while boat repair and maintenance are exempt year-round.

What would the increase in the tax be to owners if the tax exemption ends?

If the legislature eliminated the exemptions, boat owners would be subject to a 6% sales and use tax for all boat storage, repair, and maintenance services.

Do Rhode Island and New York have similar exemptions?

Rhode Island exempts boat storage, maintenance, and repair services from sales tax. Unlike Connecticut, Rhode Island exempts boat storage services year-round.

New York does not exempt winter boat storage. It taxes most marina services, including storage, repair, and maintenance services. But it exempts charges for mooring, using a slip, dockage, and wharfage from the tax (Federation of Tax Administrators, 2007 Services Taxation Survey). It also exempts any maintenance and repairs performed on commercial and fishing vessels (N.Y. Tax Law 1105(c)(3) (iv), (vii)).

What was the revenue loss from these exemptions in the past three years?

In total, the state lost an estimated $11.2 million in total revenue from FY 08 to FY 10 due to the winter boat storage and the boat repair and maintenance services tax exemptions.

Winter Boat Storage. The state lost an estimated $1.1 million in total revenue from FY 08 to FY 10 from this exemption. The loss is an estimated $370,000 for each fiscal year. This assumes that approximately 10,000 boats were stored for the winter at an average cost of $620 per boat for the season. This estimate was developed with information from the City of Stamford, the Marine Trades Association, and a 2007 marina study conducted by Miner & Silverstein, LLP (Pawcatuck River Marina Market Study – August 2007).

Repair and Maintenance Services. The state lost approximately $10.1 million in total revenue from FY 08 to FY 10 from this exemption. The revenue loss was approximately $3.8 million in FY 08, $3.3 million in FY 09, and $3.0 million in FY 10. This estimate is based on the DRS Annual Reports for 2007-08, 2008-09, 2009-10.

RESOURCE RECOVERY FACILITIES

Resource recovery facilities have a sales tax exemption on materials they buy that go into processing trash to energy (CGS 12-412 (35)).

What was the revenue loss from this exemption in the past three years?

The revenue loss associated with this tax exemption is $1.85 million from FY 08 to FY 10. The loss was approximately $630,000 in FY 08, $1,010,000 in FY 09, and $210,000 in FY 10. This estimate was developed using data on machinery and equipment purchases provided by the Connecticut Resources Recovery Authority.

NONPROFIT ORGANIZATIONS

Nonprofit organizations are exempt from paying sales tax on items they buy and, in some cases, from collecting tax on items they sell. The exemption for nonprofit purchases applies to items purchased exclusively for the purposes for which the nonprofit organization was established (CGS 12-412 (8)). Nonprofit organizations that sell goods or services are generally required to collect sales tax on those sales. But state law allows nonprofits to sell items at up to five one-day fundraising events per year without collecting sales tax (CGS 12-412 (94)).

The law also exempts from the sales tax certain purchases and sales by specific types of nonprofit organizations, including:

1. sales of items and services to and by nonprofit charitable hospitals, nursing homes, rest homes, and residential care homes (CGS 12-412 (5));

2. sales of items costing $100 or less made through gift shops in nonprofit nursing homes, convalescent homes, or adult day care centers, as long as the profits are retained for the benefit of the facility's patients or users (CGS 12-412 (56));

3. sales of items costing up to $20 by nonprofit youth and school support groups (CGS 12-412(26)); and

4. 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 before September 1, 1995 (CGS 12-412 (29) and (100)).

Which other states exempt nonprofit purchases and sales from sales tax?

States vary widely in the extent to which they exempt nonprofit purchases and sales from sales tax. Attachment 1 describes how states treat nonprofit purchases, including whether they allow the nonprofit sales tax-exemption to pass through to other entities purchasing materials and supplies on behalf of the organizations (i.e., contractors hired by a nonprofit for a construction project). Attachment 2 describes how states treat sales by nonprofit organizations for sales tax purposes.

Nonprofit Purchases. Generally, states fall into three groups based on how they treat nonprofit purchases: broad, limited, or no sales tax exemption. Table 1 lists the states in each category. Most states (26, including Connecticut) provide a broad sales tax exemption for nonprofit purchases. The next largest group of states (15) exempts certain types of nonprofits or specific organizations from the tax. The third and smallest group – Hawaii, South Carolina, and Washington – does not exempt nonprofit purchases.

Table 1: Summary of State Sales Tax Exemption of Purchases by Nonprofit Organizations

Broad Exemption

Limited Exemption

No General Exemption

Colorado

Connecticut

Florida

Illinois

Indiana

Kentucky

Maryland

Massachusetts

Michigan

Minnesota

Missouri

Nevada

New Jersey

New Mexico

New York

Ohio

Pennsylvania

Rhode Island

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Wisconsin

Wyoming

Alabama

Arizona

Arkansas

California

Idaho

Iowa

Kansas

Louisiana

Maine

Mississippi

Nebraska

North Carolina*

North Dakota

Oklahoma

West Virginia

Hawaii

South Carolina

Washington

*North Carolina semiannually refunds sales tax paid on direct purchases by certain types of nonprofits organizations

Source: Mikesell, John L. “State Retail Sales Tax Treatment of Nonprofits.” State Tax Notes, June 1, 2009.

Nonprofit Sales. Table 2 summarizes how states treat nonprofit sales using the categories in Table 1. Eight states provide a broad exemption for nonprofit sales, while eight other states provide no general exemption. The largest group of states (28, including Connecticut) specifically limit the types of organizations that are exempt from collecting sales tax on their sales or the activities that qualify these organizations for an exemption. Most states do this by limiting the (1) number of permitted days per year for tax-exempt sales, (2) proceeds from the sales, (3) types of items eligible, or (4) the price per item in the exempt sales.

Table 2: Summary of State Sales Tax Exemption of Sales by Nonprofit Organizations

Broad Exemption

Limited Exemption

No General Exemption

Arizona

Arkansas

Iowa

Missouri

Nevada

New Mexico

South Carolina

Utah

Colorado

Connecticut

Florida

Georgia

Illinois

Indiana

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

New Jersey

New York

North Carolina

North Dakota

Ohio

Rhode Island

Tennessee

Texas

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Alabama

California*

Hawaii

Idaho

Kansas

Nebraska*

Pennsylvania*

South Dakota*

* State exempts isolated sales by specific organizations.

Source: Mikesell, John L. “State Retail Sales Tax Treatment of Nonprofits.” State Tax Notes, June 1, 2009.

Attachment 1: State Sales Tax Exemption of Purchases by Nonprofit Organizations

State

Exempt Entities

Pass Through

Alabama

No general exemption, some specific and usually by name (e.g., Boy Scouts of America).

N.A.

Arizona

No general exemption, but exemption for qualified hospital and healthcare organizations, organizations serving free meals to the needy and organizations providing training to mentally or physically handicapped.

N.A.

Arkansas

No general exemption, but exempt purchases by certain named entities (Poets Round Table, Girl Scouts, etc.) and nonprofit hospitals.

Some refund of tax paid on new plant or facilities

California

No general exemption, but entity may not be taxed on items purchased for resale, art and museum pieces for public display, and health information materials for distribution.

N.A.

Colorado

Sales to charitable organizations in conduct of regular charitable activities are exempt. Organizations exempt under IRC 501(c)(3) will be exempt unless the Department of Revenue makes its own determination about the organization's charitable status.

Yes

Connecticut

Exemption references IRC 501(c)(3).

Building material for nonprofit housing

Florida

Exemption references IRC 501 (c)(3) plus other nonprofits.

No

Hawaii

No exemption.

N.A.

Idaho

No general exemption, but state exempts purchases by hospitals, specifically named health-related entities (e.g., American Cancer Society and American Red Cross), museums, senior citizen centers, and some others.

No

Illinois

Exempts charitable, religious, educational, and cultural or arts organizations (need IRC 501 (c)(3) designation).

Limited to entity providing certain services to persons over age 55

Indiana

Exempts charitable, civic, educational, literary, religious, scientific, hospitals, and others. Not as broad as IRC 501 (c)(3).

Yes

Iowa

No general exemption, but some types of entities are exempt (e.g., American Red Cross, hospitals, museums, and residential facilities for mentally handicapped children)

Exempt materials purchased for museums, Habitat for Humanity, and educational institutions

Kansas

No general exemption, but many named organizations (e.g., American Lung Association) and some types are exempt (e.g., hospitals, museums).

Yes

Kentucky

Exempts all charitable, educational, or religious institutions or historical sites (Must have IRS 501(c)(3) designation).

No

Louisiana

No general exemption. Limited specific exemptions (for example, organization providing training for the blind, limited charity, toys for donation to minors).

No

Maine

No general exemption, but specific exemption for certain healthcare, educational, religious, child-related, and other organizations (purchases by purchase order only).

Yes

Maryland

Exempts charitable, educational, religious, volunteer fire, and veterans organizations (usually requires IRC 501 (c)(3) determination; designation creates presumption of exemption).

Yes

Massachusetts

Exempts religious, charitable, education, or scientific (any IRC 501(c)(3)).

Yes

Michigan

Exempts hospital, church, IRC 510(c)(3), and IRC 501(c)(4). (Automatic)

No (except hospitals and qualified housing)

Minnesota

Exempts charitable (including hospitals), religious, educational (including youth groups), and senior citizen and veterans groups. (Linked to property tax exemption).

Yes, but not on lump sum contracts

Mississippi

No general exemption, but hospitals and some specific categories exempt.

Yes

Missouri

Exempts charitable, religious, civic, social, service, and fraternal (charitable functions).

Yes

Nebraska

No general exemption; exempts certain entities, including religious organizations, those serving the blind, hospitals and related child care, child-placing agencies, and organizations serving persons with developmental disabilities.

Yes

Nevada

Exempts religious, charitable, and educational entities (including hospitals) (not linked to IRC 501(c)(3)).

No

New Jersey

Exempts religious, charitable, educational, scientific, literary, veterans, volunteer fire department, and PTA/PTO organizations (IRS 501(c)(3) not referenced).

Yes

New Mexico

Exempts IRC 501(c)(3) organizations on tangible personal property only (not services or construction materials).

No

New York

Exempts religious, charitable, educational, scientific, literary, and other select nonprofit organizations. (IRC 501(c)(3) not referenced but uses same list).

Yes

North Carolina

Purchases not exempt, but sales tax paid on direct purchases by nonprofit hospitals, educational institutions, churches, orphanages, and other charitable or religious institutions and qualified retirement facilities are subject to semiannual refund.

Yes (refund)

North Dakota

No general exemption; exempts hospitals and nonprofit health and meal delivery groups.

No

Ohio

Exempts sales to churches and certain other nonprofit organizations (IRC 501(c)(3) status).

Yes

Oklahoma

No general exemption; exempts churches, nonprofit schools, cultural organizations, and some others.

Limited

Pennsylvania

Exempts charitable, religious, and educational organizations and volunteers (purchase of $200 or more).

Limited

Rhode Island

Exempts nonprofit hospitals, educational institutions, churches, and others by listed type.

Yes

South Carolina

No exemption for purchases (except for resale).

N.A.

South Dakota

Exempts nonprofit hospitals, religious educational institutions, charitable relief agencies, and nonprofit private educational institutes.

No

Tennessee

Exempts churches, orphanages, hospitals, and others, including some by name (e.g., Boys Club); No general exemption for items to be resold (references IRC 501(c)(3) and more).

No

Texas

Exempts charitable, educational, and religious organizations; some others by type (references IRC 501(c)(3)).

No

Utah

Exempts sales to religious or charitable institutions (must have IRC 501(c)(3) exemption); sales less than $1,000 by refund.

Yes

Vermont

Exempts organizations that qualify under IRC 501(c)(3).

Yes

Virginia

Exempts IRC 501(c)(3) and IRC 501(c)(4) organizations. Separate legislative actions no longer required.

No

Washington

No exemption for purchases.

N.A.

West Virginia

Exempts purchases by IRC 501(c)(3) organizations, subject to requirement that entity be a church, elementary or secondary school financed by contributors, or a youth organization (public support test).

No

Wisconsin

Exempts purchases by religious, charitable, scientific, or educational organizations and those devoted to prevention of cruelty to children or animals.

No

Wyoming

Exempts purchases by religious or charitable organizations and nonprofit organizations providing meals or service to senior citizens.

No

Source: Mikesell, John L. “State Retail Sales Tax Treatment of Nonprofits.” State Tax Notes, June 1, 2009.

Attachment 2: State Sales Tax Exemption of Sales by Nonprofit Organizations

State

Status

Alabama

Not exempt.

Arizona

Broadly exempt.

Arkansas

Exempts sales by churches and charitable organizations.

California

Generally taxed, limited exemption for particular sales (for example, pets by animal welfare organizations). Special provisions when fundraising firm used.

Colorado

Exemption for fundraising activities (12 days or less, net proceeds not exceeding $25,000).

Connecticut

Exemption for up to five one-day fundraising events per year. (purchases for resale are exempt).

Florida

Exempts sales of donated property by organizations benefiting minors and sales by religious institutions.

Georgia

Exempts religious institution fundraiser sales (no more than 30 days), sales by organizations raising funds for public libraries, and food and beverage sales by Girl and Boy Scouts.

Hawaii

Not exempt.

Idaho

Not exempt (exempt purchases for resale are reimbursed from the amount collected when sold). Exempts fees charged at shooting ranges or shooting competitions.

Illinois

Not exempt, except for sales exclusively to members, students, patients, and inmates, occasional public dinners no more than twice per year, and sales not in direct competition with business.

Indiana

Exempts fundraising sales for not more than 20 days per year. Sale of periodicals, books, or other property for educational, cultural, or religious purposes or for improvement of member job skills or professional qualifications is exempt.

Iowa

Exempts sales by educational, religious, or charitable organizations if profits are used for exempt purpose.

Kansas

Not exempt.

Kentucky

Exempts first $1,000 of sales by nonprofit organizations not in the business of selling.

Louisiana

Exempt at events when proceeds used for organization's purposes (by application for the event).

Maine

Fundraiser sales exempt as casual sales (taxable when items purchased by organization). Other sales are not exempt.

Maryland

Exempts sales by religious organizations, certain food sales, and hospital thrift shop sales.

Massachusetts

Exempts casual and isolated sales for fundraising (not in regular course of business). Museum gift shop sales are taxable.

Michigan

Exempts sales if less than $5,000 in calendar year. All sales taxed if sales exceed $5,000. (items purchased for resale are exempt)

Minnesota

Fundraising sales exempt (not more than 24 days per year).

Mississippi

Exempts Girl Scout cookies and sales by nonprofit and schools. Isolated, casual, and occasional sales also exempt.

Missouri

Exempt.

Nebraska

Not exempt, except for the sale of meals by and one annual sale at religious organizations

Nevada

Exempt.

New Jersey

Exempts occasional fundraising sales and qualifying thrift store sales.

New Mexico

Exempt.

New York

Exempt (certain exceptions).

North Carolina

Not exempt, except for one fundraiser per year and food sales by religious institutions. Resale exemption for purchase of taxable items.

North Dakota

No exemption for ongoing sales in competition with private businesses or for limited events in publicly owned facilities; exempts other sales. Exempts annual church supper or bazaar in public facility.

Ohio

Exempts sales for up to six days in calendar year.

Oklahoma

Not general exemption, but exempts sales by churches and a list of other organizations.

Pennsylvania

No exemption, except isolated sales and food and beverages sold by church.

Rhode Island

Exempts organizations supporting youth activities or items sold for up to $20.

South Carolina

Exemption for sale by churches, charitable, educational, and literacy organizations, and some named entities (e.g., Girl Scouts).

South Dakota

No general exemption; certain admissions exempt.

Tennessee

Exemption up to two sales per calendar year for periods of 30 days or less. Organizations over that limit but selling no more than $400 per month may pay tax on items purchased for sale in lieu of collecting tax on sales. Larger organizations must collect tax and may purchase without paying tax. Sales of used clothing are exempt.

Texas

No general exemption. Limited exemption for certain meat and food sales, banquets, auctions, and rummage sales (two, one day per year, items not sold for more than $5,000), senior citizen groups (self-made items, no more than four 20-day sales per year), and periodicals published by certain organizations.

Utah

Exempts sales by religious or charitable institutions.

Vermont

Exempts sales by organization if its sales did not exceed $5,000 in the prior year.

Virginia

Exempts occasional sales (up to three occasions in calendar year, each started and finished within 30 days), but sales at fairs, flea markets, festivals, or carnivals are always taxable.

Washington

Exempts fundraising activities (not regular business activities).

West Virginia

Exempts fundraising events for churches and nonprofit organizations (up to six events lasting no more than 84 hours in 12-month period).

Wisconsin

Exempts occasional sales by nonprofit organizations (20 days or less, total receipts of $25,000 or less).

Wyoming

Exempts occasional sales by religious or charitable organizations for fundraising and not in course of regular business (single event occurring four or fewer times in a year).

Source: Mikesell, John L. “State Retail Sales Tax Treatment of Nonprofits.” State Tax Notes, June 1, 2009.