Title of Regulation: 23VAC10-210. Retail Sales and Use Tax (amending 23VAC10-210-310).

Statutory Authority: § 58.1-203 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comments: Public comments may be submitted until 5 p.m. on September 4, 2009.

Effective Date: September 19, 2009.

Agency Contact: Todd Gathje, Analyst, Department of Taxation, 600 East Main Street, Richmond, VA 23219, telephone (804) 371-2301, FAX (804) 371-2355, or email todd.gathje@tax.virginia.gov.

Basis: Section 58.1-203 of the Code of Virginia provides the tax commissioner the power to issue regulations relating to the interpretation and enforcement of the laws of this Commonwealth governing taxes administered by the Department of Taxation.

Purpose: Churches have the option of using the general nonprofit entity sales tax exemption provided for under § 58.1-609.11 of the Code of Virginia or the self-issued exemption certificate available only to churches pursuant to § 58.1-609.10 of the Code of Virginia using Form ST-13A, Certificate of Exemption. This action amends the regulation governing the use of the self-issued exemption certificate available only to churches pursuant to § 58.1-609.10 of the Code of Virginia using Form ST-13A, Certificate of Exemption. This regulatory action is necessary to ensure a predictable and adequate revenue stream for the government to provide for the health, safety, and welfare of its citizens.

Chapters 757 and 758 of the 2003 Acts of Assembly created § 58.1-609.11 of the Code of Virginia, which simplified the nonprofit exemption process and enabled more charitable organizations to take advantage of the exemption, and created an administrative process to qualify nonprofit organizations for general sales and use tax exemptions. Beginning on July 1, 2004, nonprofit organizations were permitted to apply online for a retail sales and use tax exemption, via Nonprofit Online, a quick, efficient and secure way created and developed by TAX for organizations to apply for a Virginia sales and use tax exemption for the first time or renew their exemption certificate (https://www.npo.tax.virginia.gov). Under the new law, any organization that is exempt under IRC § 501(c)(3) and (4), provided they are organized for charitable purchases, is permitted to apply to TAX to obtain this exemption if they meet all of the statutory criteria. This exemption provides a broad exemption for nonprofit organizations and eliminates the process of seeking an exemption through legislature.

However, many churches continue to use the self-issued exemption certificate available only to churches pursuant to subdivision 16 of § 58.1-609.10 of the Code of Virginia using Form ST-13A, Certificate of Exemption. This exemption was originally a narrow exemption, but it has been expanded greatly over time. Prior to 2006, the exemption explicitly excluded tangible personal property that is used in any form for recording and reproducing services from the list of items that were covered under the exemption. Legislation enacted by the General Assembly (Chapter 338 of the 2006 Acts of Assembly) added tangible personal property used by a church for recording and reproducing services to the list of exempt items. Legislation enacted by the General Assembly (Chapter 758 of the 2007 Acts of Assembly) added language that exempts property used in caring for or maintaining property owned by a church including, but not limited to, mowing equipment and building materials installed by a church, and for which the church does not contract with a person or entity to have installed in a public church building. The purpose of this action is to update the regulation relating to churches to conform to these statutory changes.

Rationale for Fast-Track Process: Revising the current regulation to include language that reflects current legislation is not expected to be controversial.

Substance: This regulation will be revised to clarify the application of the sales and use tax to churches, which are permitted to continue to use their self-issued exemption certificates, rather than apply for new exemption certificates from the Department of Taxation under the new nonprofit exemption process, and to include as exempt from the retail sales and use tax a church's purchase of tangible personal property used in any form for recording and reproducing services and caring for or maintaining property owned by a church including, but not limited to, mowing equipment and building materials installed by a church, and for which the church does not contract with a person or entity have installed in a public church building. The regulation will also be revised to update the list of examples of tangible personal property exempt from sales and use tax.

Issues: The regulatory action poses no disadvantages to the public or the Commonwealth.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Department of Taxation (Department) proposes several amendments to the Retail Sales and Use Tax regulation section (23 VAC 10-210-310) on tax exemptions for churches.¹ There have been several statutory changes since this regulation was last amended. All proposed changes to the regulation are either straight from current statutes, repeat language already in other regulations, or are merely clarifying language and do not change requirements. Proposed changes include exempting the following from taxation: 1) items used in recording and reproducing religious worship services (Chapter 338 of the 2006 Acts of Assembly), and 2) property used in caring for or maintaining property owned by the church including, but not limited to, mowing equipment and building materials installed by a church, and for which the church did not contract with a person or entity to have installed, in a public church building; and other items of tangible personal property used in religious worship services. The proposed regulation also delineates the differences between tax exemptions for churches and other non-profit entities.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. The current regulation is inconsistent with parts of the Code of the Virginia. When statutes and regulations conflict, the statutes prevail. Since all proposed changes are either straight from statute, repeat language already in other regulations, or are merely clarifying language and do not change requirements, the proposed amendments do not change any requirements for the public and thus do not produce any cost. The proposed amendments will be beneficial for the public in that there will be less confusion on the ruling law concerning tax exemptions for churches due to the removal of inapplicable language and the addition of clarifying language. Therefore, the proposed amendments create net benefit for the public.

Businesses and Entities Affected. The proposed amendments affect nonprofit religious organizations in Virginia.

Localities Particularly Affected. The proposed amendments do not disproportionately affect particular localities.

Projected Impact on Employment. The proposal amendments do not directly affect employment.

Effects on the Use and Value of Private Property. The proposal amendments do not directly affect the use and value of private property.

Small Businesses: Costs and Other Effects. The proposed amendments do not affect small businesses.

Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposed amendments do not adversely affect small businesses.

Real Estate Development Costs. The proposed amendments do not directly affect real estate development costs.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 36 (06). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

_______________________________

¹ Church is defined as a nonprofit religious organization, regardless of faith, that would be considered a church under the standards promulgated by the Internal Revenue Service for federal income tax purposes (i) that has been specifically recognized by the Internal Revenue Service as being exempt from taxation under § 501(c)(3) of the Internal Revenue Code or (ii) whose real property is exempt from local real property taxation under § 58.1-3606 of the Code of Virginia.

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: The agency agrees with the Department of Planning and Budget's economic impact analysis.

Summary:

This regulatory action makes numerous substantive amendments relating to churches that reflect legislative changes. Changes include amending the regulation with respect to the exemption allowed for items used in recording and reproducing religious worship services; property used in caring for or maintaining property owned by the church including, but not limited to, mowing equipment and building materials installed by a church and for which the church did not contract with a person or entity to have installed in a public church building; and other items of tangible personal property used in religious worship services. This regulation also explains the differences between this exemption and the nonprofit entity exemption.

23VAC10-210-310. Churches.

A. Generally. A nonprofit church is entitled to an exemption from the sales and use tax on certain purchases. In order to qualify for this exemption, a church must have received determination that it is either: (i) exempt from taxation under § 501(c)(3) of the Internal Revenue Code; or (ii) exempt from local real property taxation under § 58.1-3606 of the Code of Virginia.

The exemption extends only to purchases by a nonprofit church of tangible personal property (except that used in recording and reproducing religious worship services) for use:

1. in religious worship services by a congregation or church membership while meeting together in a single location, and

2. in libraries, offices, meeting or counseling rooms or other rooms in the public church buildings used in carrying out the work of the church and its related ministries, including kindergarten, elementary and secondary schools.

When purchasing an item qualifying for exemption, a church must furnish the supplier a properly completed Form ST-13A, Certificate of Exemption.

B. Religious worship service. The term "religious worship service" includes regularly scheduled church services as well as weddings, bar mitzvahs, bat mitzvahs, baptisms, christenings, funerals, and special services conducted during religious holidays. The following property used in the worship service may be purchased exempt from the tax. This list is exemplary and not all inclusive.

Acolyte robes

Altar cushions and cloths

Baptism, marriage, and membership certificates

Baptismal font

Bibles and Bible stands

Bulletins or programs (including paper and ink used to print these)

Candles and candelabra used at the location of the worship service

Choir robes

Communion supplies and tables

Flags used at the location of the worship service

Flowers and plants, live or artificial, and accessories thereto used at the

location of the worship service

Funeral pall

Hymnals and hymnal racks

Light bulbs used at the location of the worship service

Microphones and public address system used in the worship service except

when incorporated into realty

Musical instruments used in the worship service (e.g., organ, piano, hand

bells)

Name tags for ushers and guests, and attendance records

Offering envelopes

Pews, cushions, chairs or other seating systems

Portable heaters and fans and window air conditioners used at the location

of the worship service

Prayer books

Pulpit, lectern, pulpit lamp

Rosaries, crosses, crucifixes

Carpeting used at the location of the worship services (except glued-down

carpeting)

Sheet music

Systems to assist persons who are hearing-impaired

Tallithim

Torahs

Vestments for ecclesiastical celebrants

Wafers, bread, wine, grape juice used in communion service

Yarmulkes

C. Other exempt purchases. Some examples of property which is exempt when used in carrying out the work of the church and its related ministries are administrative supplies (letterhead, envelopes) and equipment, cleaning supplies and equipment, fuel oil, food consumed on the premises and gifts for distribution at activities held in the public church buildings.

D. Taxable purchases. The following property is taxable because it is not used in rooms in the public church buildings used in carrying out the work of the church and its related ministries or because it is affixed to or has become a part of the real estate. The list is exemplary and not all inclusive.

Any property used in the parsonage or on church trips, retreats, picnics or similar outings outside a church building

Any property used in maintenance of church grounds, including without limitation lawn mowers, grass seed and fertilizer

Tool sheds and picnic shelters

Baptisteries, stained glass windows, lighting fixtures and other property which when installed becomes a part of real estate

Bulletins, programs or newsletters which are printed outside the public church building (except those used in the religious worship service)

Construction and building materials

Gifts for distribution outside the public church buildings (for example, food baskets)

Heating and air conditioning equipment which is a part of real estate

Kitchen equipment which is a part of real estate

Property used in any manner for recording or reproducing religious worship services

Repair parts, accessories, oil and similar items for use in motor vehicles

If a supplier fails to collect the tax on any taxable purchases, the church must report and pay the use tax on Consumer's Use Tax Return, Form ST-7.

In order to qualify for exemption, tangible personal property must be purchased by, invoiced to and paid for directly by the nonprofit church. Purchases by the minister from his own funds, purchases by affiliated religious associations, and purchases by church members or others for donation to the church are subject to the tax.

The exemption does not extend to sales by the nonprofit church. (See 23VAC10-210-1070 through 23VAC10-210-1072.)

23VAC10-210-1070 through 23VAC10-210-1072 and 23VAC10-210-4020 address purchases for use or consumption by nonprofit kindergartens, primary and secondary schools.

A. Definitions.

The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

"Carrying out the work of the church and its related ministries" means engaging in activities that communicate or spread the religious teachings and practices of a church.

"Church" means a nonprofit religious organization, regardless of faith, that would be considered a church under the standards promulgated by the Internal Revenue Service for federal income tax purposes (i) that has been specifically recognized by the Internal Revenue Service as being exempt from taxation under § 501(c)(3) of the Internal Revenue Code or (ii) whose real property is exempt from local real property taxation under § 58.1-3606 of the Code of Virginia. The term "church" includes any departments, regular schools of religious education, and other activities of a church that are not separate legal or business entities, including kindergartens, elementary and secondary schools, preschools, nurseries, and day care centers. The term "church" does not include broadcasting television organizations, such as evangelical television and radio ministries, missionaries, political action committees (PACs), affiliated entities separately incorporated from a nonprofit religious organization, and camps and conference centers. However, a limited exemption is available to camps and conference centers as set forth in subsection F of this section.

"Church department" means any administrative division of a church used in carrying out the work and related ministries of the church. This term includes, but is not limited to, boards; committees; councils; men's, women's or youth ministries; and outreach ministries of the church.

"Public church building" means a building, the primary purpose of which is to house the regularly scheduled worship services of the church and those adjacent offices and buildings at a single location in which activities are conducted to carry out the work of the church and its related ministries.

"Regular school of religious education" means any program instituted by a church to provide regularly scheduled classes on the teaching of the church and includes, but is not limited to, Sunday school, catechism, Hebrew school, vacation Bible school, and Bible study classes.

"Religious worship service" means regularly scheduled church services and includes, but is not limited to, weddings, bar mitzvahs, bat mitzvahs, baptisms, christenings, funerals, and special services conducted during religious holidays, when conducted at the public church building.

B. Overview. This section addresses the sales and use tax exemption provided to churches pursuant to § 58.1-609.10 of the Code of Virginia using Form ST-13A, Certificate of Exemption. In general, a church is entitled to an exemption from the sales and use tax on certain purchases of tangible personal property for use in:

1. Religious worship services by a congregation or church membership while meeting together in a single location;

2. Libraries, offices, meeting or counseling rooms, kitchens, or other rooms in the public church buildings used in carrying out the work of the church and its related ministries, including kindergarten, elementary and secondary schools, preschools, nurseries, and day care centers;

3. Recording and reproducing church services; and

4. Caring for or maintaining property owned by the church.

Churches also have the option of using the general nonprofit entity sales tax exemption provided for under § 58.1-609.11 of the Code of Virginia. In order to obtain the general nonprofit entity exemption, the church must apply to the Department of Taxation and receive a Retail Sales and Use Tax Certificate of Exemption. This section is applicable only to the self-issued exemption for churches pursuant to subdivision 16 of § 58.1-609.10 of the Code of Virginia using Form ST-13, Certificate of Exemption. It does not apply to the general nonprofit entity sales tax exemption provided for under § 58.1-609.11 of the Code of Virginia.

C. Exercising the exemption. In order to qualify for exemption, tangible personal property must be purchased by, invoiced to, and paid for directly by the church. If a minister, church member, or other church worker purchases tangible personal property on behalf of the church using his personal funds, the purchase is taxable even if reimbursed to the person by the church. A personal check is payment made by an individual and not by the church. Cash payment provides no proof that the church makes direct payment to the dealer of the merchandise. If a supplier fails to collect the tax on any taxable purchase, the church must report and pay the use tax on Form ST-7, Consumer's Use Tax Return.

When purchasing an item qualifying for exemption, a church must furnish to the supplier a properly completed Form ST-13A, Certificate of Exemption. This self-issued certificate of exemption is limited to tangible personal property specified in § 58.1-609.10 of the Code of Virginia.

D. Exempt purchases.

1. Purchases for use in religious worship services and in public church buildings in carrying out the work of the church and its related ministries. The following tangible personal property may be purchased exempt from the tax when purchased by the church for use in religious worship services by a congregation or church membership while meeting together in a single location and for use in public church buildings in carrying out the work of the church and its related ministries. The list is exemplary and not all inclusive.

a. Acolyte robes;

b. Administrative supplies (letterheads, envelopes, office supplies, etc.);

c. Altar cushions and cloths;

d. Baptism, marriage, and membership certificates;

e. Baptismal font;

f. Baptistries;

g. Bibles and Bible stands;

h. Bulletins, programs, newspapers, and newsletters that do not contain paid advertising (including paper and ink used to print these);

i. Candles and candelabra;

j. Choir robes;

k. Communion supplies and tables;

l. Curtains and flags;

m. Flowers and plants, live or artificial, and accessories thereto;

n. Fuel oil;

o. Funeral pall;

p. Gifts, including food, for distribution outside the public church building;

q. Hymnals and hymnal racks;

r. Kitchen equipment that is not incorporated into realty;

s. Musical instruments (e.g., organ, piano, hand bells, drums, brass instruments, woodwind instruments, etc.);

t. Name tags for ushers and guests, and attendance records;

u. Offering envelopes;

v. Office machinery and equipment;

w. Pews, cushions, chairs, and other seating systems;

x. Portable heaters, and fans and window air conditioners used at the location of the worship service;

y. Prayer books;

z. Pulpit, lectern, pulpit lamp;

aa. Rosaries, crosses, crucifixes;

bb. Rugs and carpeting not affixed to the realty;

cc. Sheet music;

dd. Systems to assist persons who are hearing-impaired

ee.Tallithim;

ff. Torahs;

gg. Vestments for ecclesiastical celebrants;

hh. Wafers, bread, wine, grape juice used in communion service; and

ii. Yarmulkes.

2. Purchases for recording and reproducing church services. Equipment, tools, supplies, or other tangible personal property used in any form of recording or reproducing of church services can be purchased exempt of the retail sales and use tax. Recording and reproduction items shall include, but are not limited to, the following:

a. Amplifiers, microphones, speakers, and wires;

b. Audiovisual recording devices;

c. Tools and testing equipment;

d. Tape or disk duplicating devices;

e. Audiovisual cameras;

f. Television broadcasting cameras;

g. Radio and television transmitting devices; and

h. Photographic cameras, film, developing supplies.

3. Property used in caring for or maintaining property owned by the church.

a. Tangible personal property that is purchased for use in caring for or maintaining property owned by the church is exempt from the retail sales and use tax. Such property shall include, but not be limited to, the following:

(1) Mowing equipment including but not limited to, lawn mowers, baggers, weed-eaters, edgers, and replacement parts (lawn mower blades, tires, wheels, lights, spark plugs, filters, other mechanical components, etc.);

(2) Ladders;

(3) Vacuums;

(4) Mops;

(5) Buckets;

(6) Janitorial supplies;

(7) Pressure washers;

(8) Rakes;

(9) Brooms;

(10) Cleaning equipment and supplies;

(11) Light bulbs

(12) Leaf blowers;

(13) Tools (hammers, drills, saws, screwdrivers, knives, paint brushes, nails, screws, etc.);

(14) Property used in maintenance of church grounds including, but not limited to, grass seed, trees, shrubs, and fertilizer; and

(15) Repair parts, accessories, oil, and similar items for use in motor vehicles owned by the church, even if such motor vehicles are not used exclusively for church-related activities.

b. Certain building materials. Building materials that are installed in the public church buildings that are used in carrying out the work of the church and its related ministries may be purchased by the church exempt of the retail sales and use tax, provided such equipment is installed by the church and the church does not contract with a person or entity to have such property installed. Building materials shall include, but not be limited to, the following:

(1) Wood products (lumber, plywood, moldings, etc.);

(2) Drywall;

(3) Flooring (hardwood floors, laminate, vinyl, tile, carpet, etc.);

(4) Paint;

(5) Kitchen and bathroom sinks;

(6) Toilets;

(7) Electrical materials (wires, receptacles, light switches, etc.);

(8) Telephone wires;

(9) Cable television wires;

(10) Roofing materials (shingles or other types of roofing, gutters, roofing nails, etc.);

(11) Siding (aluminum, wood, vinyl, stone, brick, stucco, etc.);

(12) Masonry materials (cinderblocks, bricks or stones, concrete mix, etc.);

(13) Insulation;

(14) Windows;

(15) Doors, door handles, and door locks;

(16) Plumbing materials (pipes, septic systems, garbage disposals, etc.); and

(17) Cabinets, counters, and countertops.

E. Taxable purchases.

1. Generally. Tangible personal property purchased by a church is generally taxable when it is (i) not used in religious worship services by a congregation or church membership while meeting in a single location; (ii) not used in sanctuaries, libraries, offices, meeting or counseling rooms, or other rooms in the public church buildings used in carrying out the work of the church and its related ministries; or (iii) used by separate legal or business entities that may be associated with the church.

2. Construction and building materials furnished to contractors.

a. If building materials, kitchen equipment, heating and air conditioning equipment, tool sheds, and picnic shelters are furnished by the church to a contractor for incorporation in real estate, and the church did not pay the tax on the materials, the contractor, as the user and consumer of the materials, must pay the use tax directly to the department based on the fair market value of the materials used, irrespective of whether or not any right, title, or interest in the materials become vested in the contractor.

b. A baptistry that will be incorporated into real estate at the public church building and used in the religious services of a church is exempt from the tax whether purchased by the church or the contractor.

3. Examples of other taxable purchases. Other taxable purchases are described in the following list, which is exemplary and not all inclusive.

a. Any property used on church trips, picnics, or similar outings outside a public church building; or

b. Bulletins, programs, newspapers, and newsletters that contain paid advertising (including paper and ink used in printing).

F. Camps and conference centers.

1. Church-related activities.

a. Purchases. The tax does not apply to purchases of food and beverages, disposable serving items (such as paper plates, cups, napkins, plastic forks, spoons, and knives), cleaning supplies, and teaching materials used and consumed in operating camps or conference centers by a church or an organization composed of churches that are exempt from the sales and use tax and that are used in carrying out the work of the church and its related ministries. The purchase may be made exempt of the tax by the church or the camp or conference center using Form ST-13A, Certificate of Exemption.

Example 1: A church organization that is composed of a number of church congregations allows one of its church affiliates to hold a youth camp at its conference facilities located in Virginia in order to educate the participants in the church's religious teachings. The church organization purchases food, disposable serving items, and teaching materials that will be given to the participants in the youth camp. In addition, cleaning supplies are purchased for maintaining the facilities. The purchase of food, disposable serving items, teaching materials, and cleaning supplies provided by the church organization would be exempt from the tax.

b. Sales.

(1) Rooms, lodgings, and accommodations. When a church or organization composed of churches operates a camp or conference center and makes separate charges for room rentals, lodging, and accommodations, the charges are taxable as provided in 23VAC10-210-730. The church or organization must register as a dealer, collect the tax on the amount of the charge, and remit the tax to the department. Tangible personal property used and consumed in providing rooms, lodging, and accommodations is taxable at the time of purchase.

(2) Meals. When a church or organization composed of churches operates a camp or conference center and sells meals to participants, the sales price of meals are taxable as provided in 23VAC10-210-930. The church or organization must register as a dealer, collect the tax on the amount of the charge, and remit the tax to the department. However, the food provided in the meals, as well as paper placemats, plastic silverware, and similar items furnished with the meals and disposed of after the use by only one person, may be purchased exempt of tax under a resale exemption certificate.

(3) Camp fees. When a church or organization composed of churches operates a camp and charges the participants a camp fee that covers expenses incurred to provide meals, lodging, and camp activities, the camp fee is tax exempt. Further, the church or organization carrying out the work of the ministry may purchase the items described in subdivision 1 a of this subsection exempt from the tax.

Example 2: A nonprofit organization composed of nonprofit churches operates a retreat facility. The churches that comprise this nonprofit organization may purchase food items for the consumption of participants at the retreat facility exempt from the tax. Any church associated with the nonprofit organization may also purchase food exempt for resale, but the subsequent sale of that food to participants is taxable. A church that is not associated with the nonprofit organization and that purchases food items for consumption while using the retreat facility must pay retail sales and use tax.

2. Nonchurch-related activities. When food, disposable serving items, teaching materials, or cleaning supplies are purchased by a church or organization of churches for use in camps and conference centers for nonchurch-related activities, they are subject to the sales and use tax in the same manner of other providers of meals and accommodations. Nonchurch-related activities would include, but are not limited to, the renting of the facility for conferences, retreats, etc., by businesses, business groups, governmental organizations, and civic groups.

G. Donations of tangible personal property to churches. A church is exempt from the use tax on donations of tangible personal property that it receives from individuals, businesses, and other organizations. Persons making such donations are liable for the tax not previously paid on the cost price of the donated items unless those items are withdrawn from inventory, as provided in subdivision 15 of § 58.1-609.10 of the Code of Virginia or otherwise exempt from the tax.

H. Affiliated organizations.

1. Generally. Tangible personal property purchased by affiliated religious associations or corporations, such as political action committees (PACs) and separately organized broadcasting ministries, is taxable.

2. Separate legal and business entities. Kindergartens, primary schools, secondary schools, preschools, nurseries, day care centers, and similar activities held in the public church buildings that carry out the work and ministry of the church and that are not separate legal or business entities are generally exempt from the tax on the purchases of tangible personal property. Tangible personal property purchased for an activity that is a separate legal or business entity is taxable. Although not all inclusive, the following factors considered as a whole are used to determine that an activity is a separate legal or business entity from the church that would not qualify for the exemption:

a. The activity is a separate corporation from the church;

b. The federal identification number of the activity is different from the church;

c. Payroll and other expenses of the activity are paid out of separate bank accounts;

d. Activities are located at a different location from the public church building; and

e. Activities are not subject to the authority or control of the church.

However, preschools, primary schools, and secondary schools that are separate legal and business entities from the church may qualify for a sales and use tax exemption pursuant to § 58.1-609.11 of the Code of Virginia.

Example 3: As part of its education ministry to inner city youth, a church operates a child day care center out of its public church buildings. The center's federal identification number is the same as the church, pays its expenses out of the church's checking account, and functions under the authority and control of the church. Tangible personal property purchased by the center would qualify for the church exemption since the center is not considered a separate legal or business entity from the church.

Example 4: Facts are the same as Example 3, except that the center has a separate federal identification number and pays is expenses out of a separate checking account. Tangible personal property purchased by the center would continue to be exempt.

Example 5: Facts are the same as Example 3, except that the center is a separate nonprofit corporation that is still affiliated with the church, has a separate federal identification number, and pays its expenses out of a separate checking account. Even though the center is located in the public church building, tangible personal property purchased by the center is taxable since the center is a separate legal entity from the church.

Example 6: Facts are the same as Example 3, except that the center is located five miles from the public church buildings. Tangible personal property purchased by the center would be taxable since the center is not located in the public church buildings.

I. Sales.

1. Generally. Churches that make retail sales of tangible personal property are required to register as dealers, collect the tax from customers (who may include church members, visitors, or other persons outside the church membership) and remit the tax to the department.

2. Food. If a church makes sales of food for which a profit is realized, the church should collect tax from the customers and remit the tax to the department. In these instances, the church may purchase the food exempt from the tax using a resale exemption certificate. For purposes of this subdivision only, if the sales price charged for food is completely offset by the cost of the food, and the church realizes no profit, then the church is not required to charge the tax to its customers on the sales price of the food. Instead, the church must pay the tax to its vendors on the purchase price of the food purchased. As long as the church pays tax on the purchase price of the food that it sells at cost, the church is not required to register as a dealer while conducting this activity or charge tax to customers.

3. Other sales. If a church makes sales of cassette tapes, audiovisual tapes, books, photo directories, and jewelry or makes sales of tangible personal property in yard sales or bazaars, the church should register as a dealer, collect the tax from its customers and remit the tax to the department.

4. Occasional sales. Except as provided in subdivision 2 of this subsection of this regulation, the church must collect the tax on all sales and remit the amount to the department unless the sales meet the criteria for occasional sales as provided in subdivision 2 of § 58.1-609.10 of the Code of Virginia and 23VAC10-210-1080. Yard sales and bazaars qualify as occasional sales under subdivision 2 of § 58.1-609.10 of the Code of Virginia and 23VAC10-210-1080.

Example 7: A church holds yard sales to raise money to support ministries and other church-related activities. The yard sales are held in the church facility or on church grounds, and consist of the sales of tangible personal property donated by church members. Although numerous items of tangible personal property are sold at each yard sale, each day's yard sale is considered to be one sale for purposes of the occasional sale rule. As long as the church does not hold more than three yard sales in a calendar year, the church is not required to register as a dealer and collect and remit sales tax.

Example 8: Facts are the same as in Example 7, except that the church rents a booth or space for one day from a flea market organizer who is registered as a dealer. The primary business of the flea market is to rent a booth or space to sell tangible personal property. As the church yard sale takes place as part of a regular ongoing business (the flea market) that takes place more than three times a year, the yard sale would not qualify as an occasional sale. The flea market organizer is held responsible for the collection of sales tax for any property sold using its facilities and must collect sales tax from the church based on the sales price of property sold or allow the church to collect the tax and remit it to the Department of Taxation.