South Carolina Department of Revenue Goes after Christian School
On March 6, 2001, the Fellowship Bible Church of Lancaster, SC was forced to undergo a use tax audit by the South Carolina Department of Revenue (DOR). The church had started its school, Carolina Christian Academy, about four years ago. The church is now being held liable for use tax on everything that it had purchased (for use in its school) from out of state sources, unless the full amount of sales tax had been paid to that state. In other words, if the supplier did NOT charge sales tax, the church now must pay the 5% use (sales) tax here in South Carolina. If the supplier DID charge a sales tax, and it was LESS than 5%, the church must now pay the DIFFERENCE to the state of South Carolina.
In as much as the school ministry of the church was in its formative stage four years ago, a substantial amount of equipment such as desks, chairs, cabinets, etc. was purchased, mostly from out of state sources. The church must now pay the use tax on that material. It is also being held liable for use tax on items such as plastic forks, spoons, napkins, curriculum guides, assorted books, educational CD's, and much more. A total tax liability of $12,000, plus penalties and interest amounting to a total of about $20,000, is now being required from the church.
It is true that ALL businesses, churches, AND individuals are NOW LIABLE for use tax on any and all purchases from out of state. To keep up with that is an onerous and almost impossible task. However, that is not the real problem.
The DOR is stridently affirming that the church school is NOT part of the church, that it is a business and should be treated accordingly. This creates some subtle, but significantly different problems.
DOR officials, in a recent meeting with the SCACS Executive Board, warned that ALL churches and schools should immediately do an internal tax audit for the last three years to see how much they owe the state DOR. If that is done, and payment is made promptly, there would be no penalty. Only the interest would be added to the amount of tax that is due.
When we (SCACS) began contacting our legislators, most of them were astonished that churches were required to pay sales tax OR use tax. We discovered that most of them were totally unaware of the code requiring that action. Most have said they would like to see this problem rectified.
The DOR has readily admitted that they normally do not "go after" churches, but indicated that they will now search out Christian schools and other church "ministries" (and even churches themselves) that have shown significant growth to determine if they have paid the proper amount of use taxes. They are also adamant that the Christian school is not part of the church. Likewise, in their eyes, a "stand alone" or board operated Christian school would also be liable for this intrusive action, although it may properly hold 501 (c) (3) exemption as a religious, educational organization.
SCACS is seeking to accomplish two objectives:
1. Require the DOR to recognize our schools, child care centers, camps, etc. as part of the overall church ministry.
2. Ask the legislature to provide an exemption from sales and/or use tax for all 501 ( c ) (3) church and religious organizations. A proviso for a one-year relief will be introduced as part of the budget legislation on Tuesday, April 24, by Senator David Thomas. If successful, it would protect us for another full year and give us time to get proper legislative relief introduced.
Rev. Reece Yandle, Executive Director
South Carolina Association of Christian Schools
P.O. Box 899, Ladson, SC 29456