One of the wackier aspects of the Alabama Tax Code is the way exemptions from sales and use taxes are handed out. Under Alabama Administrative Code Section 810-6-5-.16, churches and other not-for-profit agencies are not exempt from sales and use taxes on their purchases (or sales) of tangible personal property unless their exemption has been established by a special act of the Legislature. This leads to some bizarre passages in the Code,such as the ones that grant sales tax exemptions to the Wesco Girls Softball Team in Madison County and the Southeast Livestock Exposition in Montgomery. There is no doubt that these are worthy organizations, as are most of the several hundred other groups that have been specially annointed by the Legislature, but it seems so inefficient to consider each agency one at a time.
Recently some of the larger law firms in the state have teamed up with some of the state's larger churches to shortcut this process, taking advantage of some language in the Code that exempts "all community chests and united appeal funds, and all charitable, civic and eleemosynary organizations and institutions for whom they solicit funds" from paying sales tax. (To save you having to run to your dictionary, "eleemosynary" is a synomym for "benevolent".) Immediately before these mega-churches begin a building project, their lawyers form a "United Appeal Fund" for the church, thereby allowing the church to purchase all of its construction materials free of sales tax. According to Revenue Commissioner Tom Surtees, this scheme could lead to the church avoiding as much as $200,000 of sales taxes on a $5 million building project, assuming that materials make up 40% of the total cost of the project.
In the most recent session of the Legislature, Representative Betty Graham (D - Alexander City) introduced a bill to strike "all community chests and united appeal funds" from the Code and substitute "The United Way" in its place, which would presumably have prevented the churches from using their "United Appeal Funds" to avoid taxes. According to an article in The Montgomery Advertiser, 6/17/07), her measure was supported by the Alabama Education Association because a majority of the sales tax collected in the state goes to the Special Education Trust Fund. The House approved the Graham Bill, and it was up for final approval by The Senate on the last night of the session. The Christian Coalition brought its considerable lobbying clout to bear and was able to prevent the bill from being voted on by the Senate, so it is dead at least until a new session.
There probably is a good policy argument for excluding churches and other nonprofits from the burden of paying sales tax. After all, these groups are generally excused from the payment of income taxes, so why not relieve them from sales taxes also? The revenue impact would be major, and there would have to be additional taxes to replace the lost funds, so that would make a blanket exemption a really tough sell; but at least we would be treating all churches and nonprofits alike. As it is, we seem to be favoring only those wealthy churches who can afford the high-priced legal talent to set up a "United Appeal Fund".
This page last updated 6/19/07
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