So where was I wrong ? Puchases made by a 'not-for-profit' organization are treated exactly the same as purchases made by a for-profit enterprise in the normal course of running its business.The not-for-profit is eligible for the exemptions in Sec. 102. To get them their purchases must be "for resale; to produce, provide, render, or sell taxable property or services; or in furtherance of other bona fide business purposes." Basically, a nonprofit doesn't have any "business purposes" so to not pay the FairTax, their purchases must be for resale or to produce taxable property or services.
"For nonprofit institutions, equals current expenditures (including consumption of fixed capital) of religious organizations, child day care services (excluding educational programs), social advocacy organizations, human rights organizations, civic and social organizations, residential mental health and substance abuse facilities, homes for the elderly, other residential care facilities, social assistance services, political organizations, museums, libraries, and grantmaking and giving services. The expenditures are net of receipts--such as those from meals, rooms, and entertainments--accounted for separately in consumer expenditures, and exclude relief payments within the United States and expenditures by grantmaking foundations for education and research. For proprietary and government institutions, equals receipts from users."The expenditures of nonprofit organizations is in the FairTax base and is assumed to be taxed by the AFT. One of the stated purposes of the FairTax bill is "to tax all consumption of goods and services in the United States once, without exception, but only once." Suppose a charity buys a can of soup and serves it to a homeless person (he consumes it), how is the consumption of that good (the soup) taxed if the charity doesn't pay the FairTax when they purchase the soup?
I don't understand why those purchases would be in the FairTax base. That just isn't the way I read these sections of HR25.
The language of HR25 seems to EQUATE the operations expenses of a not-for-profit organization with those expenses "(3) in furtherance of other bona fide business purposes" of a business. This is an exception to the "tax everything once" rule to placate those that would otherwise complain about taxing charitable organizations.
If giving to a charity was a non-taxable event, but the charity had to pay taxes on everything it spent those contribution on, the the charity would be losing compared to the current system. You know that isn't going to happen, and it isn't the way HR25 is written.
Nightmare, since under the FairTax anybody can give somebody else money and pay no FairTax, what would be the point of a Not-for-Profit Organization ? If the Not-for-Profit was treated just like any consumer, and had to pay the FairTax on purchases to run its operations, why would HR25 need any language at all with regards to Not-for-Profits ?
`SEC. 706. NOT-FOR-PROFIT ORGANIZATIONS.
(e) EXEMPTIONS- Taxable property and services purchased by a qualified not-for-profit organization shall be eligible for the exemptions provided in section 102.
`SEC. 102. INTERMEDIATE AND EXPORT SALES.
`(a) IN GENERAL- For purposes of this subtitle--
`(1) BUSINESS AND EXPORT PURPOSES- No tax shall be imposed under section 101 on any taxable property or service purchased for--
`(A) a business purpose in a trade or business, or
`(B) export from the United States for use or consumption outside the United States, if, the purchaser provided the seller with a registration certificate, and the seller was a wholesale seller.
`(2) INVESTMENT PURPOSE- No tax shall be imposed under section 101 on any taxable property or service purchased for an investment purpose and held exclusively for an investment purpose.
`(3) STATE GOVERNMENT FUNCTIONS- No tax shall be imposed under section 101 on State government functions that do not constitute the final consumption of property or services.
`(b) BUSINESS PURPOSES- For purposes of this section, the term `purchased for a business purpose in a trade or business' means purchased by a person engaged in a trade or business and used in that trade or business--
`(1) for resale,
`(2) to produce, provide, render, or sell taxable property or services, or
`(3) in furtherance of other bona fide business purposes. `(c) INVESTMENT PURPOSES- For purposes of this section, the term `purchased for an investment purpose' means property purchased exclusively for purposes of appreciation or the production of income but not entailing more than minor personal efforts.
Sorry about not previewing the original post. I added an italics flag late and forgot it would wipe out the auto-formatting.
My interpretation of HR25 seems to match the sources I've looked at. Check this quote from page 4 of a whitepaper about the effect of the FairTax on Charitable giving:
"• Charitable operations, of course, continue to be tax exempt, operating under a sales tax
exemption certificate as they do today with most states. No purchase made by an exempt
charity is taxed.
• When charities provide products or services to individuals for compensation, essentially
a retail transaction, that transaction is taxed. This is comparable to the current system
not allowing the deduction of that portion of a gift for which the donor received some
return compensation."
http://www.fairtax.org/pdfs/Religious_Donations.pdf#search='fairtax%20charitable'
This would be a pretty big thing to get wrong, and I doubt that has happened at the AFFT.
I think Laurence Vance was incorrect in his article you posted last December. Vance is no authority on the FairTax. Others have it correct:
From http://50reasons.blogspot.com/
"All contributions to Churches and other non-profit organizations are made tax-free. These organizations no longer will bear the expense of filing tax returns with the IRS and paying their half of Social Security and Medicare payments for employees. In order to purchase goods and services tax free they will just have to apply to the state sales tax authority for a qualification certificate as a bona fide not-for-profit organization operated exclusively for religious, charitable, scientific or educational purposes."
I'll e-mail Karen Walby (who probably put together the NIPA numbers you used) and ask her about the inclusion of not-for-profit expenditures as part of the FT base.
Giving soup to the homeless by a church is certainly NOT a taxable event since that is the comfort and sustenance that is one of the things churches do as their "for busieness purposes". It is not taxed when purchased by the church assuming they use their exemption (and why would they not?) and is not taxed when given away since it is not sold (not "consumed" under the meaning of the bill).
Your example does not hold water (or soup).