Ruling 63-15

Internal Revenue Service
Revenue Ruling

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Rev. Rul. 63-15

1963-1 C.B. 189

IRS Headnote

The excise tax exemptions relating to `nonprofit educational organizations,' provided by sections 4057, 4221(a)(5), and 4294 of the Internal Revenue Code of 1954, apply to sales of taxable articles and to the furnishing of taxable services and facilities to nonprofit associations which have been created and are operated exclusively to carry out various activities of their member organizations, each of which comes within the scope of the term `nonprofit educational organization.'

Full Text

Rev. Rul. 63-15

The Internal Revenue Service has been asked whether the excise tax exemptions relating to `nonprofit educational organizations' apply to sales of taxable articles by manufacturers and retailers to an association of the type described below and to amounts paid by such an association for communication or transportation services or facilities.

Many activities normally carried on by colleges and universities can be more effectively accomplished through the combined efforts of a group of such institutions. Primary among these activities are the solicitation of contributions and the promotion of athletic programs. Associations composed entirely of privately supported nonprofit colleges and universities have been created and are operated exclusively to carry out these activities.

Some of these associations solicit and receive funds for the benefit and support of the member institutions. They aid and promote the educational endeavors of their members and interpret to the public the aims, functions, and needs of the institutions, with a view to better mutual understanding and cooperation. Some of the associations have as their purposes and functions the stimulation and improvement of intramural and intercollegiate sports, the adoption of strict eligibility rules, and the supervision of athletic contests on a regional or national level.

Sections 4057(a) and 4221(a)(5) of the Code provide that, under regulations prescribed by the Secretary of the Treasury or his delegate, no retailers excise taxes or manufacturers excise taxes shall be imposed with respect to the sale of articles to a nonprofit educational organization for its exclusive use.

Section 4294(a) of the Code provides that, under regulations prescribed by the Secretary or his delegate, no tax shall be imposed on any amount paid by a nonprofit educational organization for communication or transportation services or facilities furnished to such organization.

Under the provisions of sections 4057(b), 4221(d)(5), and 4294(b) of the Code, the term `nonprofit educational organization' means an educational organization which is exempt from income tax under section 501(a) and which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. The term also includes a school operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The associations described above are made up of member institutions each of which comes within the scope of the term `nonprofit educational organization' for purposes of the excise tax exemptions. Although each association, as a separate entity, has been granted an exemption from Federal income tax under the provisions of section 501(a) of the Code, the association does not itself maintain a regular faculty or curriculum and does not have a regularly enrolled body of pupils or students. Accordingly, the association itself does not come within the specific definition of the term `nonprofit educational organization.' However, since the function of these organizations is to carry out the activities of their member institutions, each of which is a nonprofit educational organization, sales of articles or facilities or services furnished to the associations are deemed to be for the exclusive use of their member institutions.

In explanation of the purpose of sections 4057, 4221(a)(5), and 4294, the Committee Report indicates that nonprofit private educational organizations were to be accorded exemption similar to the exemption for sales of articles, or facilities or services furnished public schools under section 4055, 4221(a)(4), and 4292. See House of Representatives Report No. 481, Eighty-fifth Congress, Second Session, C.B. 1958-3, 372, at 385. See also Rev. Rul. 58-492, C.B. 1958-2, 814; Rev. Rul. 59-37, C.B. 1959-1, 384; and Rev. Rul. 60-304, C.B. 1960-2, 343.

Accordingly, it is concluded that the exemption under section 4221(a)(5) of the Code applies to a manufacturer's sales of articles to an association of the type described above, as the articles are to be used by that vendee for the `exclusive use' of colleges and universities each of which qualifies as a `nonprofit educational organization.'

Similarly, under the provisions of section 4057(a) of the Code, no retailers excise tax will be imposed with respect to the sale of articles to such an association for the `exclusive use' of the member institutions.

Likewise, under the provisions of section 4294(a) of the Code, no communications or transportation tax will be imposed on any amount paid by such an association for communication or transportation services or facilities furnished to the association for use in carrying out the activities of the member institutions.