Md. Code Regs. 03.06.01.22

Current through Register Vol. 51, No. 22, November 1, 2024

Section 03.06.01.22 - Exempt Charitable or Nonprofit Organizations

A. In this regulation, "food" has the meaning as defined in Tax-General Article, § 11-206(a)(3)(i) and (ii), Annotated Code of Maryland.

B. Purchases by an Organization.

(1) A purchase by a nonprofit charitable, educational, or religious organization or volunteer fire company or department, or volunteer ambulance company or rescue squad, located in this State, when the purchase is made to carry on the work of the organization, is exempt from the tax.

(2) A purchase by a bona fide nationally organized and recognized organization of the veterans of the armed forces of the United States or an auxiliary of the organization or one of its units, is exempt from the tax.

(3) A purchase to be used primarily for carrying on an "unrelated trade or business" as that term is defined in §513 of the Internal Revenue Code, or a purchase made by officials, members, or employees of the organization for their personal usage is not a purchase made to carry on the work of the organization within the meaning of this regulation. A purchase by the organization to be used for raising funds in activities which do not constitute an "unrelated trade or business" qualifies for the exemption.

(4) A purchase of tangible personal property, a digital code, or a digital product by a nonprofit parent-teacher association located in the State is exempt from the tax if the association contributes the purchase to a public or nonprofit elementary or secondary school. A parent-teacher association may present the exemption number of its school to a vendor to claim the exemption.

(5) Purchases of tangible personal property and taxable services are exempt if purchased by:

(a) A cemetery company that holds a 501(c)(13) designation from the Internal Revenue Service;

(b) A credit union organized under the laws of Maryland or the United States; or

(c) A nonprofit organization that holds a 501(c)(4) designation from the Internal Revenue Service and provides a program to contain, clean up, or otherwise mitigate oil spills or other substances occurring in the United States coastal and tidal waters.

C. Sales by an Organization.

(1) Generally, a sale of tangible personal property, a digital code, a digital product, or a taxable service by an exempt organization is subject to tax.

(2) The following sales are not subject to the tax:

(a) Sales made by a bona fide church or religious organization when made for the general purposes of the organization.

(b) Sales made by a gift shop at a mental hospital that the Maryland Department of Health operates.

(c) Sales made by an independent hospital thrift shop that is operated by all volunteer staff, sells only donated articles, contributes the profits from sales to the hospital with which the shop is associated, and is not operated in conjunction with a gift shop or other retail establishment.

(d) Sales made by a vending facility operated under the Maryland Vending Program for the Blind and located on property held or acquired by or for the use of the United States for any military or naval purpose where a post exchange or other tax exempt concession is operated.

(e) Sales of magazine subscriptions by an elementary or secondary school in the State, or a nonprofit parent-teacher organization or other nonprofit organization within the school, when the students act as salespersons or order takers, if the net proceeds from the sales are used solely for the educational benefit of the school or its students. Sales from an agreement or contract with an organization to participate in a fund-raising activity for a percentage of the gross receipts when students sell or take orders for magazines are also exempt.

(f) Sales of food, the proceeds of which are used to support a bona fide nationally organized and recognized organization of veterans of the armed forces of the United States or auxiliary of the organization or one of its units, for consumption only on the premises, when served by the organization or auxiliary.

(g) Sales of food, the proceeds of which are used to support a volunteer fire company or department or its auxiliary or a volunteer ambulance company or rescue squad or its auxiliary, when the food is served by the company, department, squad, or auxiliary.

(h) Auction sales by or on behalf of a bona fide church, religious organization, or other qualified nonprofit organization, if the proceeds of the sale are used to carry on the exempt purposes of the church or organization. Unless the auction is held directly by a bona fide church or other religious organization, the exemption is limited to only that portion of the sale price that exceeds the fair market value of the tangible personal property, digital code, or digital product, and therefore qualifies for a deduction under the federal income tax as a charitable contribution under the regulations and guidelines of the Internal Revenue Service. In auctions held by an auctioneer or any person or organization other than a bona fide church or other religious organization, the exemption is subject to limitation. This exemption requires that the portion of the sale price that qualifies for a deduction under the federal income tax must be separately stated from the fair market value portion of the sales price. If the two components of the sale price are not separately stated, then the sale price is subject to the tax in its entirety.

(i) Sales of food, bottled water, soft drinks or carbonated beverages, or candy by a nonprofit food vendor at a youth sporting event or 4-H youth event for individuals under the age of 18 years if there are no facilities for food consumption on the premises, unless the sale is within an enclosure for which a charge is made for admission.

D. Exemption Certificates.

(1) The Comptroller will issue an exemption certificate upon approval of an application to:

(a) A nonprofit charitable, educational, or religious organization that is:

(i) Located in the State;

(ii) Located in an adjacent jurisdiction and provides its services within the State on a routine and regular basis; or

(iii) Located in an adjacent jurisdiction whose law does not impose a sales or use tax on a sale to a nonprofit organization made to carry on its works, or contains a reciprocal exemption from sales and use tax for sales to nonprofit organizations located in adjacent jurisdictions.

(b) A volunteer fire company or department or a volunteer ambulance company or rescue squad located in the State; and

(c) Other organizations entitled to exemptions on their purchases, such as governmental entities, bona fide nationally organized and recognized veterans' organizations, and credit unions.

(2) An organization wishing to claim an exemption to which it is entitled shall exhibit its exemption certificate to the vendor at the time of sale. The vendor shall record the valid serial number of the exemption certificate on any record or evidence of each sale. Unless the exemption certificate is exhibited at the time of sale, the applicable tax shall be charged by the vendor.

E. Form and Expiration of Exemption Certificates.

(1) An exemption certificate contains the organization's name, address, eight-digit account number, and, except for governmental entities, specifies an expiration date. Except for governmental entities, certificates will expire on September 30, 2017, and, upon reissuance, at 5-year intervals after that. Upon application, the Comptroller will issue new exemption certificates to replace existing certificates of those organizations which continue to qualify for tax exempt status.

(2) Designation of Categories. The first two digits of the eight-digit account number assigned to the organization by the Comptroller designate the category in which the organization is included, as follows:

(a) 29 - religious institutions;

(b) 30 - federal, state, and local governmental agencies;

(c) 31 - educational and charitable organizations, qualified cemeteries, and qualified oil spill mitigation organizations;

(d) 32 - credit unions;

(e) 33 - volunteer fire departments, rescue squads, and ambulance companies; and (f) 34 - veterans' organizations.

(3) Contractors purchasing materials to be incorporated into the real property of a nonprofit charitable, educational, or religious organization, a volunteer fire company or rescue squad, or a bona fide, nationally organized and recognized veterans' organization may use the exemption certificate issued to that organization to purchase the material tax-free. Purchase of material which will be incorporated into the real property of any other organization, including an otherwise exempt governmental entity, is subject to the tax.

(4) A vendor may accept the exemption certificate number issued to a religious institution on a resale certificate instead of a sales and use tax license number. Other private exempt entities may not use their exemption certificate number to issue resale certificates but shall register as vendors and use their sales and use tax license numbers for this purpose.

(5) A vendor may not exempt from the tax any sale to any entity on the basis of an exemption certificate which has expired. The tax shall be collected on sales to entities claiming exemption status unless the vendor is presented with an unexpired exemption certificate issued by the Comptroller to that organization.

Md. Code Regs. 03.06.01.22

Regulation .22 repealed effective July 21, 1976 (3:15 Md. R. 785)
Regulation .22 amended effective 40:16 Md. R. 1340, eff.8/19/2013
Regulation .22C amended effective August 11, 1997 (24:16 Md. R. 1159); amended effective 49:14 Md. R.704, eff. 7/11/2022