Nonprofit Organizations – Subject to Sales & Use Tax…or Not?

November 6, 2013

Not-for-profit organizations are generally exempt from income tax, but this exemption does not extend to sales & use tax (sales taxes). Sales taxes go by a different set of rules, which fluctuate state-by-state and also by the type of not-for-profit organization.

SALES

Sales by not-for-profits are exempt from tax only if they meet certain conditions.  

In Wisconsin, not-for-profits may be required to collect sales tax on sales if they do not meet certain conditions. If qualified, they may use either the occasional sales exemption or one of the special rules carved out for certain items or situations.

Does your organization qualify for the occasional sales exemption? 

The occasional sales exemption recognizes that not-for-profits may need to conduct events and sell items, and Wisconsin law allows this tax-free on a very limited basis. To qualify, you must meet all three of the following conditions or standards.

  1. You must not be “engaged in a trade or business,” which is determined by days spent conducting the event and sales dollars.
  2. “Entertainment” is not involved at an event for which you charge admission.
  3. You must not have a seller’s permit and not be required to have one.

Examples of sales commonly made by not-for-profits that have more complicated tax treatment:  

Assuming the organization is required to hold a seller’s permit, the following items are taxable:

  • Admission to a “Taste of the Town” or wine & cheese tasting event
  • Annual golf outing
  • Silent auction sale of gift certificates (taxable if the gift certificate is for a specific item)
  • Business seminars and dinners (only taxable if food is provided)
  • Awards banquets (only taxable if food is provided)
  • Social events

How does sales tax apply if you sell taxable and nontaxable items together for one non-itemized price?  

By default, the entire sales price is subject to tax, but if you can identify the part of the sales price that applies to nontaxable items, you may charge sales tax on only the taxable part. However, this exception is not available if the bundled items include food and food ingredients, drugs, durable medical equipment, mobility-enhancing equipment, prosthetic devices, or medical supplies.

PURCHASES

When are a not-for-profit organization’s purchases exempt from sales tax?  

Not-for-profit organizations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or for the prevention of cruelty to children or animals are also known as 501(c)(3) organizations. These organizations are exempt from Wisconsin sales tax on all purchases of tangible personal property or taxable services used for carrying out the organization’s exempt purpose.

Other organizations (for example, social groups, civic organizations and chambers of commerce) are subject to sales tax on their purchases unless an exemption (such as resale) applies.

We understand the rules are not always easy to interpret and follow. The guidance provided above is general in nature and should not be relied upon, as the rules are very fact specific. For more information, please contact your Schenck representative at 800-236-2246.