Internal Revenue Service
Revenue Ruling sm

Rev. Rul. 64-141

1964-1 C.B. 391

IRS Headnote

Sales of articles to a student organization operated on the campus of a state college, under the authority of the educational code of the state, are considered to be for the exclusive use of a state. Therefore, those sales come within the scope of the exemptions provided by sections 4055 and 4221(a)(4) of the Internal Revenue Code of 1954, with respect to the retailers excise taxes and the manufacturers excise taxes.

Full Text

Rev. Rul. 64-141

Advice has been requested whether articles, which are otherwise subject to the retailers excise taxes or the manufacturers excise taxes, may be sold on a tax-exempt basis to the student organization described below, which is operated on the campus of a state college.

The student organization is a corporate entity separate from the college itself. The purposes of the organization are to provide extra-curricular social and physical activities which are not provided by the college, to assist in promoting and carrying out the educational services of the college, to engage in public relations activities on behalf of the college, to promote and maintain a student self-government organization under the supervision of the state college officials, and to perform other functions related to student activities of the college.

As part of its program, the organization provides activities which include, but are not limited to, the production of campus publications, the operation of musical organizations, speech and dramatic activities, student government activities, intramural and intercollegiate sports, and the sponsorship of clubs and organizations which are designed for students specializing in various major subject matter areas offered by the college.

The members of the organization are duly registered students in the state college who have paid their membership fees and have not forfeited their right to membership by infraction of any rule or regulation of the organization. Associate membership cards are issued to faculty members and employees of the college. Income is derived from a student activity fee, receipts from football and basketball games, student plays and musicals, and student-published newspapers and yearbooks.

The purposes for which the organization was formed do not contemplated the distribution of gains, profits, or dividends to its members. Its articles of incorporation provide that, upon dissolution of the corporation, all assets thereof will be offered first to the state director of eduction for the benefit of the college. If not accepted, they will be offered to the state director of finance. If not accepted by the latter official, the assets shall be paid to charitable organizations designated by the board of directors of the organization.

The source of authority for the creation of the student organization is the educational code to the state, which provides that a student body organization may be established at any state college under the supervision of the college officials for the purpose of providing essential activities closely related to, but not normally included as part of, the regular instructional program of the college.

The educational code further states that if a student body organization is established at any state college, the state director of education shall fix a membership fee which shall be required of all regular students attending such college. Each state college student must pay the required membership fee as a prerequisite to enrollment in the college, and all moneys collected by a state college in behalf of a student body organization shall be available for such purposes of the student body organization as are approved by the state director of education. These funds may be drawn against by the appropriate officers of the student organization for expenditures necessary to carry out the purpose of the organization.

The educational code also provides that the state director of education shall prescribe rules and regulations, subject to approval of and audit by the department of finance of the state, covering the collection, custody, and dispositon of any and all moneys collected by a state college.

Section 4055 of the Internal Revenue Code of 1954 provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, the retailers excise taxes will not apply to the sale of any article for the exclusive use of any State, Territory of the United States, or any political subdivision of any of the foregoing, or the District of Columbia.

Section 4221(a)(4) of the Code provides that, under regulations prescribed by the Secretary or his delegate, the manufacturers excise taxes will not apply to the sale of any article to a State or local government for the exclusive use of a State or local government.

Based on the facts in the instant case, it is held that, although the student organization is not itself an integral part of the college, the articles sold to that organization for use by it in carrying out the functions described above are sold `for the exclusive use of' a state within the meaning of the exemption provisions of sections 4055 and 4221(a)(4) of the Code. Therefore, where taxable articles are sold to the student organization for its exclusive use, those exemptions apply, provided the requirements of the law and applicable regulations with respect to the particular exemptions are met.