ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Monday, March 17, 1997 TAG: 9703170092
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: CODY LOWE THE ROANOKE TIMES
A T-shirt printer started contacting church customers to collect back taxes the state said he owed. Most agreed; then he called the Rev. Mike Palmer of Green Ridge Baptist Church.
Howard Semones didn't like it, but when an auditor for the Virginia Department of Taxation told him he would have to collect back sales taxes from churches that had purchased his silk-screened T-shirts, that's what he started to do.
Churches - like other nonprofit organizations - are exempt from paying state sales taxes under a wide range of circumstances. In 21 years of business, Semones had never charged a sales tax on T-shirts for Sunday school classes, church camps or church ball teams.
The auditor said that was a mistake.
In the last three years, the December audit showed, Semones' business - Spartan Silk Screen - had sold $20,000 worth of T-shirts to almost 40 churches and religious organizations. And the auditor said Semones must collect almost $1,000 in back taxes from those customers.
Earlier this year, in addition to adding the tax to new orders, Semones started contacting his old church customers. The first 10 or so agreed, some reluctantly, to pay the back taxes, he said. Then he called the Rev. Mike Palmer of Green Ridge Baptist Church.
Palmer last week said he was "not very happy" about what he saw as a "possible infringement of our basic First Amendment rights" to religious freedom.
The statute granting churches the limited sales-tax exemption says the purchases must be used ``1) In religious worship services by church members meeting together in a single location, and 2) in libraries, offices, meeting or counseling rooms or other rooms in the public church buildings used in carrying out the work of the church and its related ministries."
The law has been interpreted by the courts and the taxation department over the years to include everything from light bulbs to choir robes to pulpits to yarmulkes. Recently, the exemption was extended to uses outside the physical church building, such as the printing of newsletters sent to members' homes and "food and teaching materials used in the operation of a camp or conference center which are used in carrying out the work of the church."
The way Palmer reads that, the T-shirts he bought "for a specific children's camp and used for worship there, fulfilled the state law." Those ought to be exempt, Palmer said Wednesday, even if the softball team T-shirts are not.
But excluding the athletic shirts, "I would submit, is too narrow an interpretation attempting to define the mission of the church," Palmer said.
"I am a pastor today as a direct result of the Hollins Road Baptist Church outreach through their softball team back in the 1960s. I might not have come to know the Lord the way I do today if it had not been for the outreach through that softball ministry."
Bob Megna, assistant commissioner for the taxation department's Office of Tax Policy, said Wednesday his department has always interpreted the law to mean that a church's purchase must be "specifically associated with the ministry of the church, and be used within the church building."
"As for softball teams, even if they are church sponsored, we would say that is not within the ministry of the church and not within the church building."
Megna said he recognizes "there is an issue a problem" and that the retailer is in the middle between the taxation department and customers who feel they should be exempt from the tax.
Though his department "will certainly look at each case on a facts-and-circumstances basis, and I would not rule out anything," Megna said he couldn't think of an example in which he would think the T-shirt sales would be allowed the tax exemption.
In a 1996 letter from Tax Commissioner Danny M. Payne on a similar appeal for an exemption for "athletic shirt sales," Payne wrote that the department faces a "mandate by the Virginia courts" that "where there is any doubt as to the applicability of the exemption, the exemption must be denied."
Semones contends, however, that issue has little relevance to his situation because "only 15 percent" or so of his church sales were for athletic teams.
After talking to Palmer, Semones stopped trying to collect the back taxes and contacted the Charlottesville-based Rutherford Institute, a religious-liberties organization that provides free legal representation in cases it perceives as religious discrimination.
Rutherford spokeswoman Jessica Knight said Wednesday that while her organization is still investigating the case, it has not officially accepted it yet. The institute does not usually take on a tax case unless there is religious discrimination, which she said did not appear to be the case with Spartan Silk Screen.
Semones also has been in touch with Rep. Bob Goodlatte's office, which wrote a letter to the Virginia tax office about the case.
Goodlatte, R-Roanoke, said Wednesday that although Semones' problem is with a state agency, not a federal one, his office was willing to try to help a constituent who was having a problem.
The tax department "may have a good legal basis" for its position, Goodlatte said, but Semones "seemed to have a legitimate concern."
In the meantime, Semones worries that he may lose his church business to competitors who still think they don't need to charge sales tax to churches.
"It's hard to stay in my budget with a youth ministry of this size," said the Rev. Anthony Thomas, youth pastor at West Salem Baptist Church. The next time he needs T-shirts he "might" go to a vendor who doesn't charge the tax, Thomas said this week.
He recently placed a $525 order with Spartan Silk Screen. He had to pay $24 in sales tax - enough to have bought five additional T-shirts.
"We have a good relationship with Mooch [Semones' nickname], but I have to be really careful" with a $8,500-a-year budget, Thomas said.
In addition to not being able to afford losing customers, Semones says his "mom and pop" business can't afford a legal battle over the issue. So, if the Rutherford Institute or somebody with influence doesn't take up his case, he won't be able to carry on the challenge.
But that doesn't mean there won't be legal ramifications.
At Green Ridge Baptist, Palmer said that, if the state continues to insist that Semones must pay the money, he will take the matter to his church for a vote.
Although the congregation "might be willing to pay it" so Semones doesn't get stuck with the tab, it also may consider litigation over the issue.
"I hope the state commissioner will rescind his ruling" that the taxes are owed, Palmer said, "but it appears that it may have to be tested."
LENGTH: Long : 121 lines ILLUSTRATION: PHOTO: JANEL RHODA THE ROANOKE TIMES. Howard Semones, aby CNBsilk-screener in Salem, never charged a sales tax on T-shirts for
Sunday school classes, church camps or church ball teams. A state
auditor says that was a mistake. color.