BIR Ruling [DA-383-98]

August 24, 1998 BIR RULING [DA-383-98] The Salvation Army Philippine Territorial Headquarters 1414 Leon Guinto Sr. Street 2100 Ermita, Manila Attention: Captain Miguel M . Tandayag Public Relations Officer Gentlemen : This refers to your faxed letter dated February 23, 1998 stating that The Salvation Army, a religious, non-profit charitable organization, has been receiving donations in kind ranging from used clothing, furniture, appliances and all sorts of things which are given freely to the needy or retained and distributed to your various social service centers; that since your social programs often lack sufficient funding and do not enjoy government financial grant, you are exploring the possibility of operating a small store enterprise to support your ongoing social services; that you are planning to merchandise the donated items which will be sorted and processed before being sold at very low prices; and that the proceeds raised will benefit your social service and child care centers, such as Bethany's Children's Home and Joyville Street Rehabilitation Center, which are presently inadequately subsidized. cdll Based on the foregoing, you are inquiring if your envisioned project is exempt from tax and in the alternative, whether the donors are entitled to claim as deductible expense the donated items. In reply, please be informed that as a religious, non-profit charitable corporation, the income received by The Salvation Army as such organization is exempt from payment of income tax pursuant to Section 30 (E) of the Tax Code of 1997. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition thereof, which income should be returned for taxation purposes. (Last paragraph, Section 30, Tax Code of 1997). Accordingly, the income that The Salvation Army will realize from operating a small store enterprise by selling the donated items even at very low prices, regardless of the disposition thereof, shall be subject to income tax. On the other hand, Section 34 (H)(1) and (2) of the Tax Code of 1997, provides that donations to an accredited non-government organization (NGO), which means a non-profit domestic corporation or association organized and operated exclusively for scientific, research, educational, character building and youth and sports development, health, social welfare, cultural or charitable purposes or a combination thereof, no part of the net income of which inures to the benefit of any private individual, shall be entitled to limited and full deduction from the business income of the donor. Such being the case, this Office is of the opinion as it hereby holds that for income tax purposes, contributions and donations of used clothing, furniture, appliances, etc., in favor of The Salvation Army shall be entitled to such limited and full deduction from the gross income of donors or contributors (except only from those earning compensation income) in accordance with the provisions of Sec. 34(H)(1) and (2)(c) of the Tax Code of 1997. cd Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)