Do Nonprofits Pay Sales Tax on Fundraisers?

Nonprofit organizations face various tax obligations beyond federal income tax. Many assume a nonprofit’s federal tax-exempt status, granted by the IRS, automatically exempts them from all taxes. This is a common misconception regarding sales tax, which is governed by individual state and local jurisdictions. Determining if nonprofits must collect sales tax on items sold during fundraising events requires careful attention to state statutes and the nature of the sales.

Nonprofit Sales Tax Status

Sales tax is a consumption tax on goods and services, collected by sellers and remitted to the state. A nonprofit’s federal income tax exemption, like 501(c)(3) status, applies to its income tax liability and does not automatically exempt it from state sales tax obligations on its sales. States have specific laws regarding sales tax exemptions for charitable, religious, or educational organizations. Some states offer broad exemptions, while others have limited provisions. States often require separate applications and approvals for sales tax exemption, distinct from federal income tax exemption.

Taxability of Fundraiser Sales

Sales tax implications for items sold at a nonprofit fundraiser depend on the type of goods or services and sales frequency. Tangible personal property, such as t-shirts, crafts, or donated goods, is generally subject to sales tax unless a state exemption applies. Items sold during silent auctions may also be taxable, with some states applying sales tax to the proceeds.

Admissions or tickets to events like galas or concerts have varied sales tax treatment across states. Some jurisdictions exempt admission charges if all proceeds benefit a qualified nonprofit, while others do not. If a ticket price includes tangible personal property like food or beverages, sales tax may apply to that portion. Food and beverages, including those from bake sales or catered meals, often have specific sales tax rules and can be taxable. Services, such as car washes or professional services auctioned, are generally not subject to sales tax unless explicitly defined as taxable by state law.

Some states offer “occasional sale” exemptions for nonprofit sales that are infrequent or fall below a specified sales threshold. If a nonprofit exceeds these thresholds, previously exempt sales may become taxable, requiring collection and remittance. The source of an item, whether donated or purchased by the nonprofit, generally does not alter its sales taxability. Sales tax applies to the final retail sale regardless of how the nonprofit acquired the item.

Obtaining and Using Sales Tax Exemptions

To claim sales tax exemptions, a nonprofit typically applies to its state’s tax authority. This application process is distinct from obtaining federal income tax-exempt status. Nonprofits commonly submit an application form with supporting documentation. Required documents often include the IRS determination letter confirming 501(c)(3) status, articles of incorporation, bylaws, and financial statements.

Once approved, the state issues a sales tax exemption certificate or permit. This certificate serves as proof of the organization’s exempt status. It is used when the nonprofit makes tax-exempt purchases for its organizational purposes. It also justifies not collecting sales tax on sales made by the nonprofit that are specifically exempt under state law. These certificates are state-specific, may not cover all types of sales or purchases, and often have an expiration date, requiring periodic renewal.

Sales Tax on Nonprofit Purchases

Nonprofits also need to understand their sales tax obligations on items purchased for operations or fundraising events. A sales tax exemption, if granted by the state, frequently extends to certain purchases made by the organization for its exempt purposes.

This exemption on purchases is state-dependent and can have limitations. Not all purchases may qualify, and the exemption might be restricted to specific types of nonprofits or uses. Generally, the purchase must be made directly by the organization using its funds for its exempt activities; personal purchases, even if reimbursed, typically do not qualify.

Sales Tax Compliance and Remittance

If a nonprofit must collect sales tax on fundraiser sales or other activities, it is generally required to register with the state’s tax authority as a sales tax vendor. This registration provides the nonprofit with a sales tax permit or license, authorizing it to collect tax. Once registered, the organization must accurately collect the applicable sales tax from customers at the point of sale.

Collected sales taxes are not the nonprofit’s funds; they are held in trust for the state. Nonprofits are obligated to file sales tax returns periodically, as determined by the state and sales volume. Along with filing returns, collected taxes must be remitted to the state tax authority by specified due dates. Maintaining accurate records of all sales, collected taxes, and any exemption certificates is essential for compliance and to support reported figures during potential audits.