Virginia Nonprofit Exemption for Retail Sales and Use Tax

The Commonwealth of Virginia Department of Taxation (the Department) has issued a policy change regarding meals and catering purchases made by nonprofit organizations. According to the notification issued by the Department, there has been some confusion regarding the application of the tax to purchases of prepared meals and catering by nonprofit organizations. The Department changed its policy effective April 22, 2016.

Under the new policy, the Department will evaluate exemptions from the tax for these types of transactions based on whether the nonprofit organization claiming the exemption meets the use or consumption requirements of its respective statute.

What does this mean for nonprofit organizations in the Commonwealth of Virginia? It means that nonprofit organizations that hold catered events or purchase prepared meals may be able to save significant amounts of money that had previously been paid for sales and use tax. The nonprofit should review and evaluate the event for which the purpose was made to determine if the exemption qualifies.

The Department has provided several examples outlining when an organization may or may not be exempt from the Retail Sales and Use Tax. The following are just two of the examples provided.

Example 1: A Virginia state agency holds an annual banquet to honor its employees and purchases catering services from a local restaurant. The lump sum catering charge on the invoice includes charges for the catered food, charges for servers, and charges to set up and break down tables. The state agency pays the invoice using a check drawn from the agency’s official account. The employee banquet furthers the service of the agency, the catering charges are paid for by the agency, and the agency has determined how the meals will be distributed (namely, to its employees). As such, the state agency may use the governmental exemption certificate, Form ST-12 to purchase the catered meals and services exempt of the Retail Sales and Use Tax.

Example 2: A nonprofit organization that holds a valid exemption certificate with the Department books a conference in a hotel. The nonprofit’s conference package includes meeting rooms, audiovisual equipment, and catering services. The charges for each transaction are separately stated on the hotel invoice. Effective April 22, 2016, the nonprofit organization may use its nonprofit exemption certificate to purchase the catering services exempt of the sales and use tax. The audio visual equipment also may be purchased exempt of the tax. The meeting room charges remain subject to the sales and use tax, as the nonprofit exemption certificate may not be used to purchase taxable accommodations exempt of the tax. Note that if the meeting rooms and audiovisual equipment were lumped together as a single charge, sales tax would apply to the total charge.

If you have questions whether or not your nonprofit may be exempt from Retail Sales and Use Tax please read the Department’s Tax Bulletin 16-3 or contact Clark Accounting Services at (434) 806-5400.