Illinois Appellate Court Holds Recycler Of Electronic Equipment Not Entitled To Sales Tax Or Property Tax Charitable Exemptions

The Illinois Appellate Court has held that a nonprofit recycler of electronic equipment did not qualify for charitable exemptions from Illinois sales tax or property tax.1 The taxpayer's activities were not considered to be charitable because it failed to show that it made "gifts" to an indefinite number of individuals through its recycling activities, that it gave liberally or that it lessened a burden of government. Also, the taxpayer did not prove that it was a charitable organization that put its property to primarily charitable use based on activities of providing low-cost or free technology.

Background

The taxpayer, a Missouri non-profit corporation that recycled and refurbished electronic equipment, maintained locations in Illinois and Missouri. The taxpayer was exempt from federal income tax, did not have capital stock or shareholders, and no one received a profit from its operations. The taxpayer's articles of incorporation stated its purpose was "to provide low-cost/free technology and services to college students who cannot afford it." Also, its mission statement was "to keep reusable materials out of the landfill and improve technology awareness and availability to the underserved through recycling/refurbishing and educational opportunities using recycled and refurbished technologies."

The taxpayer was funded by three sources: (i) monetary donations and grants; (ii) sales of refurbished electronics; and (iii) sales of its scrap to end processors who paid the taxpayer on a per pound basis. The majority of the taxpayer's funding was provided from the sale of scrap materials generated as a result of the recycling process. The taxpayer received compensation for some electronic items that it took to other vendors for recycling, but it was required to pay a hazardous material fee for recycling items that contained toxic chemicals, part of which was passed through as a fee to individuals and nonprofit organizations.

The taxpayer offered several programs at its Illinois location, including a free computer program that provided participants a computer in exchange for volunteering service hours.2 For the 2009 tax year, the taxpayer provided 50 people with free computers, including 20 people who donated service hours to the taxpayer. The remaining 30 people received their computers through a "Christmas Giveaway" program.

In 2009, the Illinois Department of Revenue denied the taxpayer's requests for charitable exemptions from sales tax and property tax. An administrative law judge (ALJ) recommended that the taxpayer's requests for charitable exemptions be denied because the taxpayer failed to establish that it was a charitable organization that used its property primarily for charitable purposes. Following the taxpayer's requests for administrative review of the ALJ's decisions,3 circuit courts denied the...