Illinois Appellate Court Holds that Electronic Equipment Recycler Not Exempt as a Charity

Thursday, September 5th, 2013


An Illinois appellate court recently held that an electronic equipment recycler did not qualify as an exempt charity.

The taxpayer recycled and refurbished electronics. The taxpayer received funds from monetary donations and grants from (1) selling refurbished electronics, and (2) selling its scrap to end processors. For recycling items that contained toxic chemicals, it charged a hazardous material fee. The taxpayer did not request fees from libraries, schools, seniors, veterans, or persons with disabilities. It also did not require residents or nonprofit organizations to pay the fees, and it waived fees for those unable to pay. The taxpayer offered free refurbished computers in exchange for volunteering service hours and offered free refurbished computers to certain high school students and disaster victims.

Illinois provides a sales tax exemption for corporations organized and operated exclusively for charitable purposes. Under Illinois law, an exempt charity (1) has no capital, capital stock, or shareholders; (2) earns no profits or dividends and instead gets its funds mainly through charity and holds them in trust for charitable purposes; (3) dispenses charity to all those who need and apply for it; (4) does not provide gain or profit in a private sense to any person connected with it; (5) does not appear to place obstacles of any sort in the way of those who need and want to avail themselves of its charitable benefits; and (6) uses its property for primarily charitable purposes. Illinois defines "charity" as a gift to be applied for the benefit of an indefinite number of persons for their general welfare or that in some way reduces the burdens of government.

The taxpayer had appealed an administrative law judge's (ALJ) decision that it was not an exempt charity. The ALJ had determined that the taxpayer was not a charity because it did not use its property for primarily charitable purposes. The taxpayer argued that it had two charitable purposes. First, it provided low cost and free technology. Second, it recycled electronics.

The court held that the recycling service was not a charitable activity. The taxpayer charged fees for its recycling services. The court noted that "'[c]harity' is an act of kindness or benevolence. ... There is nothing particularly kind or benevolent about selling somebody something." The taxpayer's activities did not constitute "a gift to be applied" for recipients' benefit. The recycling service was therefore not charity.

Providing electronics for free or at a reduced cost did qualify as a charitable activity. The court held, however, that the taxpayer did not meet the other criteria to be a charitable institution. The majority of the taxpayer's funding came from its sales of scrap materials, so its funds did not mainly come from charity. In addition, the court held that the taxpayer's acts of charity were merely incidental to its refurbishing business. The taxpayer therefore did not use its property for primarily charitable purposes. The taxpayer was therefore not an exempt charity.

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