We often are asked how sales tax applies to 501(c)(3) organization’s fundraising events. CPA Mary Archibald, who specializes in nonprofits, was kind enough to address this question. Read on to glean Mary’s wisdom on this topic.
The sales tax requirements may be misunderstood because most 501(c)(3) organizations do not pay income tax. Therefore, they often take for granted that they are exempt from sales tax. Indeed, when a 501(c)(3) organization puts on a fundraiser, sales tax may be last thing on its mind. However, in many states, including California, there is no exemption from sales tax for 501(c)(3) organizations.
The state-by-state rules are complex, but below are a handful of questions – with answers pertinent to California 501(c)(3)s – to help get you thinking about the sales tax implications of your organization’s events.
- Does sales tax apply to the event ticket?
- If the charge for the ticket is purely for admission, sales tax does not apply.
- If the organization serves refreshments and the ticket does not otherwise state, then sales tax does not apply to the refreshments, such as coffee and tea.
- If the organization contracts with a caterer to serve a meal, the caterer is responsible for paying sales tax based on the amount the caterer charges the organization for the meal.
- If the organization itself serves food or a meal and it is included in the ticket price, than the rules are more complex and a competent tax accountant or attorney should be consulted.
- Does sales tax apply to the price of raffle tickets?
- Tax applies to a ticket charge where the purchaser is guaranteed to win something.
- If the purchaser is not guaranteed to win anything than sales tax does not apply.
- Does sales tax apply to items sold at auction?
Generally it does apply to items sold at auction on the same basis as if the items were sold by a retailer. There is an exemption from sales tax if the organization benefits homeless shelters and certain additional requirements are meet.
Complete rules pertaining to sales tax for fundraising event activities of 501(c)(3) organizations in California can be found in Board of Equalization (BOE) Publication 18. The Multistate Tax Commission and the Association of Fund Raising Distributors and Suppliers have a handy website that links to sales and use tax rules in all 50 states. Look up the rules of your state before your 501(c)(3) holds its next fundraising sales event.