Special Subcommittee Studying Sales and Use Tax Exemptions

October 20, 1998, Richmond

During the final meeting of the special subcommittee, a representative from the Department of Taxation discussed how the department administers sales and use tax exemptions. This was followed by a discussion of draft legislation that would require periodic registration with the Department of Taxation by nonprofit organizations exempt from sales and use tax.

Administration of Tax Exemptions

Every nonprofit organization exempt from the sales and use tax must provide proof of its exemption to every vendor from whom it purchases personal property. This proof comes in the form of either a sales and use tax certificate of exemption (Form ST-13) or an individual exemption letter, both of which are issued by the Department of Taxation. The individual exemption letters have been used more in recent years. A copy of either form of proof is given to the vendor, who keeps it on file.

Draft Legislation Requiring Registration

The subcommittee reviewed draft legislation that would require nonprofit organizations exempt from the sales and use tax to resubmit the information they filed with the Department of Taxation when they first applied for an exemption and legislation was introduced on their behalf. The purpose is to ensure that the organizations still qualify for the exemption. The initial filing would be July 1, 2000, and would be followed by staggered filing every five years. Each exempt organization would receive a letter from the department confirming its exempt status. What to do about organizations that fail to satisfy the requirements was not clear and will be addressed by staff in the final draft. Also, how to stagger the organizations filing after the July 1, 2000, filing must be worked out with the department.

The subcommittee directed staff to consult with the department and to make the changes discussed. Once a final draft is completed, it will be sent to all members of the House Finance Committee and will be available to the public. The special subcommittee does not plan to meet again.

The Honorable Jay W. DeBoer, Chairman
Legislative Services contact: Stephanie L. Hamlett