In early May, we sent out an article discussing the effect of sales tax legislation passed during the Louisiana First Extraordinary Legislative Session with a promise to update our nonprofit clients after any changes were made. During the legislature's Second Extraordinary Session, several laws were passed for the purpose of fixing some unintended consequences from the first session. One of those - Act 12 - focused on reinstating certain sales tax exemptions. However, because of the complexities of the sales tax laws and the manner in which they were repealed in the first session, several exemptions are still subject to tax that many assumed the legislature would exempt. We should point out that the Louisiana Department of Revenue has yet to release any official policy documents regarding these items. If any are interpreted differently by the Department, then we will update you as soon as possible.
Legislation that repealed many sales tax exemptions in the First Extraordinary Session also set those same exemptions to phase back in over time. The date they were set to change was July 1, 2016. For most exemptions reinstated in the Second Extraordinary Session, the new laws only apply to sales beginning on July 1, 2016, and are not retroactive to sales between April 1 and June 30. The following are not all-inclusive of a nonprofit's activities and available exemptions and does not cover local sales tax liabilities from cities or parishes.
New Annual Reporting Requirement:
Before diving into sales tax exemptions, we would like to note a new annual reporting requirement is being placed on nonprofits to report the amounts and types of sales that are exempt from tax. The report period is the state's fiscal year: July 1 - June 30. It will be due Sept. 30 of each year. Organizations exempt under section 501(c)(3) of the Internal Revenue Code will not be subject to this requirement. Organizations that meet the legal definition of a church are considered to be automatically exempt under section 501(c)(3). If your organization is exempt under a different section - such as (c)(4) civic and social welfare organizations, (c)(6) business leagues and chambers of commerce, or (c)(7) social clubs - then you should continue tracking the amounts of exempt transactions for reporting later. If you are unsure of your designation, you can refer to the 1st page of your most recent Form 990.
The exemption for membership dues paid to gain admission to exclusive facilities, such as the YMCA and YWCA, has been fully reinstated as of July 1, 2016. Dues paid after June 30 are no longer subject to the tax. The tax rate is based on when the financial transaction occurs. Earlier in the year the Department clarified that only dues which grant admission to exclusive facilities that would meet the definition of a taxable service became taxable. Dues that merely grant membership in an organization without getting you "admission" into anything, such as a Rotary Club, were never taxable.
Exemptions for fundraising events by qualifying nonprofits have been fully reinstated and are no longer subject to sales tax after June 30 as long as the organization has an approved exemption certificate from the state. Sales at these events had been subject to a 5% tax between April 1 and June 30. In April, the state declared they had invalidated all previously submitted applications for exemption to events occurring after April 1, 2016 and would no longer be accepting applications while the events were subject to tax. While no official word has come from the state, we assume that they will require these applications for exemption going forward.
Entertainment Event Admissions:
This one didn't completely go away. Nonprofits (other than schools) that had previously relied on exemptions for sponsored entertainment events, such as theater, dance, and others are left with a 1% sales tax on event admissions. The tax was 5% on those tickets between April 1 and June 30. As above, the tax rate for tickets (unlike property) is based on the date the cash changes hands. If a Little Theater organization has a performance on July 10, then tickets pre-sold in June are subject to 5% tax and tickets sold at the door on July 10 are only subject to 1% tax.
Art and History Museums, Aquariums and Zoos:
Sales tax on tickets to these types of facilities remain subject to the same 3% rate they would have based on the First Extraordinary Session. They were subject to a 5% tax for tickets sold between April 1 and June 30.
Fairs and Festivals:
The exemption for admission and parking fees at fairs and festivals sponsored by nonprofit organizations has been partially reinstated. These transactions are still subject to a 1% sales tax if they occur after June 30. The tax had been 5% on transactions between April 1 and June 30. Rental of booth space (including rental of related items like tables and chairs in the booth) were determined by the Department not to be subject to tax. These events, like fundraisers, have historically required an exemption certificate from the state. Also, like fundraisers, the state declared they had invalidated previously submitted applications and would no longer be accepting them. If we learn otherwise, we will send an update.
Rental of real property (rooms, buildings, land) is not subject to sales tax while rental of personal property (machines, equipment, tools) is subject to sales tax. However, short-term rentals (30 days or less) of residential space that could be considered hotel stays are subject to tax. The state has historically exempted nonprofit camp and retreat facilities, but removed that exemption in the First Extraordinary Session. Room rentals at camp and retreat facilities owned by nonprofit organizations were subject to a 5% sales tax between April 1 and June 30 unless the customer was participating in the programs of the nonprofit and the lodging was part of that participation. The exemption from tax on these has been fully reinstated, so they are not subject to tax beginning on July 1, 2016.
Volunteer Fire Departments:
The use tax exemption for purchases of equipment by volunteer fire departments is fully reinstated. These transactions are not taxable after June 30, 2016. Purchases were subject to the 5% use tax between April 1 and June 30.
Nonprofit Private Elementary and Secondary Schools:
Nonprofit private elementary and secondary schools benefit from several sales tax exemptions, several of which had been suspended beginning April 1. Exemptions for the sale of tangible personal property (including food sold to students and teachers) by the schools, leases of educational materials to students, athletic event admissions, and entertainment event admissions at the school are reinstated. The use tax exemption for purchases of classroom instruction materials by the school are also fully reinstated. Louisiana has a list of items it considers to be instructional materials for the purposes of this exemption. It does not include basic supplies, like pens and desks. Those transactions enjoy the same exemptions they had prior to April 1 beginning on July 1. They had been subject to a variety of rates between April 1 and June 30.
The Louisiana Department of Revenue should provide additional policy documents regarding their interpretations of recently passed legislation and how they will apply the law to specific transactions. We will provide additional updates as any information changes. If you have any further questions, feel free to contact one of our Faulk & Winkler tax professionals at 225-927-6811.