Two sides of the sales tax coin – paying and collecting

Even when an organization is tax exempt, there are certain tax details that are important to recognize. Here are two reminders about taxes you pay and taxes you collect:

Paying taxes

When a tax exempt organization (only for those organized as a 501(c)(3), (4), (8), or (19))or its authorized agent purchases items for the use of the organization, no tax is required. (The seller will require proof of tax exemption, such as a certificate.) However, employees of the organization
traveling on business or dining on official business are not able to claim tax exemption for the taxable goods or services purchased and for which they are reimbursed.

Collecting taxes

Nonprofit organizations are generally required to collect sales tax on sales of taxable items. With each calendar year, you are allowed two tax-free sale days of 24 hours each. The tax-free sale dates must be designated in advance of the sale. Here are a few other qualifying rules for the tax-free sale days:

–         The two tax-free sale days cannot be consecutive.  Thus, you cannot designate a 48 hour weekend period and use up both days.

–         If your organization joins with another tax exempt organization for a sale day, both will have used a tax-free sale day.

–         Tax-free sales are valid for items that do not exceed $5,000 in value.

–         If an item is donated to the organization for the tax-free sale day, the value can exceed $5,000 as long as it is not sold back to the person or company that made the donation.

–         You can take pre-orders for a tax-free sale day as long as the items are delivered to purchasers or received from a vendor on a single day.

–         An organization cannot claim a tax-free day for sales that it makes on behalf of a for-profit company and for which it receives a portion or commission for the sale. In this case, the nonprofit organization collects sales tax for the item and gives the sales tax amount to the for-profit company for their tax payment.

Tax-free sale days are a benefit to your donors that can be planned and promoted to contribute to your fundraising events for the year.