Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 17 - Exempt Sales › Rule 701-17.1 - Gross Receipts Expended for Educational, Religious, and Charitable Purposes

Current through Register Vol. 47, No. 3, July 24, 2024
Prior to July 1, 2001, net proceeds of an organization are
				  exempt to the extent such proceeds are expended for educational, religious, or
				  charitable purposes, except receipts from games of skill, games of chance,
				  raffles, and bingo. Iowa Code section 422.45(3) requires that the activity from
				  which the proceeds are derived must be from sales of educational, religious, or
				  charitable activities and that the net proceeds be expended on these types of
				  qualifying activities to be exempt from sales tax. For the purposes of
				  determining if net proceeds are exempt from tax under this rule, subsequent to
				  the sales event, the department analyzes the activities and the extent to which
				  the net proceeds are expended on such activities. Net proceeds are exempt from
				  sales tax to the extent that they are expended on educational, religious, or
				  charitable activities.
(1)
Evaluation.
For purposes of this rule, educational, religious,
				and charitable activities will be evaluated as follows:
a.
Educational.
The
				acquisition of knowledge tending to develop and train the individual. An
				activity that has as its primary purpose to educate by teaching. An activity
				that has as its primary objective to give educational instruction. An activity
				where the educational process is not merely incidental. An activity where the
				purpose is systematic instruction. The term educational purpose is synonymous
				with educational undertaking, and therefore, it can also include recreational
				activities as well as an activity designed to offer culture to the public.
				Activities which are directly related to the educational process of such as
				intramural sports and tests given to students or prospective students to
				measure intelligence, ability, or aptitude are considered educational for
				purposes of the exemption found in Iowa Code section 422.45(3). Municipal or
				civic art and science centers and libraries are also considered educational for
				purposes of the exemption.
Example 1: Little Folks, a local preschool, has a chili
				  supper to raise money for playground equipment, educational materials, and
				  classroom furniture. The net proceeds from the supper are exempt from sales tax
				  because the total amount of the net proceeds from the chili supper will be used
				  for educational purposes. In addition, purchases made by the preschool may be
				  exempt from tax if the preschool can meet the qualifications to be classified
				  as an educational institution. See 701-17.11(422,423) for additional
				  information regarding this exemption.
Example 2: A local ballet company promotes the arts, provides
				  classes and instruction on various types of dance, and sponsors and performs at
				  numerous recitals that are free to the public. At its location, the ballet
				  company has a gift shop in which patrons can purchase T-shirts, dance wear, and
				  costumes. All proceeds are utilized by the ballet company to pay for its
				  operational expenses and to perform the activities previously mentioned. The
				  proceeds from this gift shop are exempt from Iowa sales tax to the extent they
				  are utilized to pay for the stated educational activities.
b.
Religious.
The words
				"religious purpose" are analogous to religious worship. In the broadest of
				terms, it includes all forms of belief in the existence of superior beings
				capable of exercising power over the human race. As commonly accepted, it means
				the final recognition of God. It encompasses forms of worship, reference to
				one's views about God, or the relationship to one's creator It also includes
				the use of property by a religious society or by a body of persons as a place
				for public worship.
Example I: A local church has a bake sale. All the net
				  proceeds are returned to the church for religious purposes. Bake sales are
				  generally exempt from sales tax unless the product is sold for "on-premises
				  consumption" (see
				  701-205.
				  (422,423)), but the net proceeds are exempt from tax in any event because they
				  are going to be used for religious purposes. However, any purchases made by the
				  church that are not for resale are subject to sales tax. See 701-subrule
				  17.1(3).
Example 2: Another local church conducts bingo games every
				  Thursday. The net proceeds from the bingo activities will be used for religious
				  purposes. However, bingo and other gambling activities are subject to sales tax
				  regardless of the manner in which the proceeds are going to be used. See
				  17.1(5)
"t."
c.
Charitable.
The term
				"charitable" may be applied to almost anything that tends to promote well-doing
				and well-being for public good or public welfare with no pecuniary profit to
				the one performing the service or the giving of gifts by persons kindly
				disposed toward others, without obligation. An activity for the benefit of the
				public at large which includes relief of poverty, advancement of education or
				religion, promotion of health, providing a government or municipal service, and
				other activities, the purpose of which is to benefit the community, is
				considered charitable. Maintenance of public parks is a valid charitable
				purpose. Schools, Red Cross, Boy Scouts, and relief agencies are charitable.
				Profit-making organizations are not charitable, but may engage in charitable
				activities. An activity where net earnings go to the benefit of any private
				shareholder or individual sponsoring the activity is not charitable.
Example 1: A local, nonprofit animal shelter that provides
				  shelter, medical care, socialization, and adoption services for homeless
				  animals sells T-shirts and sweatshirts depicting rescued animals as a
				  fund-raiser All the net proceeds from the sales will go to and be used by the
				  animal shelter to defray the costs it incurs. Sales of the T-shirts and
				  sweatshirts would be exempt from sales tax since the net proceeds would be
				  expended on a charitable purpose. Items purchased by the shelter for resale
				  would also be exempt from sales tax. Items purchased by the shelter that are
				  not for resale, such as dog or cat food that will be used by the shelter, would
				  be subject to sales tax.
Example 2: An American Legion post conducts a pancake supper
				  as a fund-raiser for disabled veterans. Some of the net proceeds are used to
				  benefit disabled veterans and the remainder will be used by the American Legion
				  post to pay rent and utilities at its location. Pursuant to subrule 17.1(2),
				  when a portion of the net proceeds are intended to be expended for a qualifying
				  exempt activity, then sales tax should not be collected from the consumer In
				  turn, the sponsoring organization of the activity, in this case the American
				  Legion post, would not need to remit sales tax on the portion of the net
				  proceeds that is expended for the charitable activity. However, the portion of
				  net proceeds used by the American Legion post to pay rent and utilities is
				  subject to sales tax due to the fact that the net proceeds were not used for a
				  qualifying activity.
Example 3: A nonprofit hospital operates a gift shop. All of
				  the proceeds are used to defray costs of hospital care for indigent patients
				  who are unable to pay for such care. Due to the fact that all of the net
				  proceeds are used for a charitable purpose, the proceeds are exempt from sales
				  tax. In addition, effective July 1, 1998, purchases made by the nonprofit
				  hospital are also exempt from sales tax.