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Minnesota Nonprofits Face Greater Risk of Audit


A recent decision by the Minnesota Tax Court seems to put Minnesota nonprofits at greater risk of sale tax audit, according to Mike Herold, a tax Partner with CliftonAllenLarson.

Early this year, the Minnesota Tax Court ruled that the Washington County Agricultural Society owed  $82,256 in sales taxes on gate admissions for their County Fair. The Court justified its decision on the grounds that 1) the Society did not have a legitimate nonprofit status (their nonprofit application had been rejected by the state) and 2) they had posted admissions signs with the phrase "sales tax included" next to the price.

Herold states that since the Court's decision " . . . we are seeing an increase in the types and number of sales tax audits by the Minnesota Department of Revenue.” For this reason, he recommends that Minnesota nonprofits “. . . examine their revenue streams and affiliations with for-profit groups to determine whether the sales and fundraising exemptions are in compliance with the current Minnesota law.”

Herold recommends examining the following areas to determine if a business meets the Minnesota criteria for the nonprofit exemption:

  • "The type of entity a nonprofit is renting a meeting room to;
  • The situations in which a nonprofit charges admission fees;
  • Whether a nonprofit is considered an active or passive agent of a for-profit entity;
  • What a nonprofit considers a fundraising event;
  • How a nonprofit generates revenue; and/or
  • Whether other revenues exceed incidental commercial activities and are considered fundraising." [punctuation added]

 

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Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.