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Sales Tax Advice for Nonprofits and Charitable Organizations

  • Sep 5, 2015 | Suzanne Kearns

Charitable donations are going digital: Online giving outpaced traditional giving by 6 percent in 2014. And charities are finding good use for the Internet beyond traditional fundraising efforts, such as in selling products online to boost funds. For those who do so, sales tax compliance is likely an issue.

As is typical with most sales tax issues, states vary on their rules for charitable organizations, which can make staying in compliance difficult. How to do so? We reached out to LeAnn Luna, Professor of Accounting at the University of Tennessee and an expert on this issue. Here’s what you should know about collecting sales tax if you run a nonprofit organization.

It’s Important to Learn the Rules in Your State

According to Luna, a charity is generally subject to the same rules as for-profit organizations, but there are exemptions. “If a charity sells tangible goods that are normally subject to sales tax if sold by another business, the charity is required to collect and pay sales taxes," she says. "If a charity buys goods normally subject to sales tax, it is generally liable for the tax in the same way as other organizations. All exemptions are legislated and vary from state to state. “

For instance, Luna says that the sale of Girl Scout cookies falls under the general rule, and unless the state offers exemptions, the seller is required to collect sales tax “at the same rate as Oreo cookies sold in a local grocery store.” But, she stresses, 48 states, excluding Idaho and Hawaii, have exempted Girl Scout cookie sales from sales tax.

In addition, there are other aspects that may affect whether or not you’re required to charge sales tax. For instance, Luna says “Sales tax exemptions will often vary by type of organization and what services they provide. For example, Georgia exempts sales by charities of certain medical supplies, but taxes most other sales." 

How Does Sales Tax Affect Charity Fundraisers?

Fundraisers are a great way for nonprofit organizations to raise money for specific purposes, but if you plan to conduct one, you’ll also need to be aware of your state’s laws. Luna says that limits vary by state: “For example, in Colorado, the sales are exempt if the organization conducts sales for 12 days or less and the amount raised is less than $25,000. In Georgia, the limit for most charities is 30 days or less, but there is no upper limit on the amount raised.”

Do Charities Have to Pay Sales Tax on Purchases?

In addition to staying in compliance when selling products or holding fundraisers, charities also need to learn the laws in their state about whether or not they qualify for sales tax exemptions on their purchases.

“Charities are often exempt from having to pay sales tax on their purchases, but the rules also vary from state to state,” says Luna. “In Texas and New York, charities obtain an exemption certificate that entitles them to buy most goods free of the sales tax. However, according to research by the State of New York, Hawaii, South Carolina, and Washington do not offer broad exemptions to purchases by charities. Many other states such as West Virginia offer limited exemptions. 

According to The Nonprofit Times, charity checkout campaigns in the U.S. raised about $388 million last year. If your charitable organization is one of the many that benefits from online sales or donations, be sure to check with your state's Department of Revenue to find out the sales tax laws that apply to you.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Suzanne Kearns
Avalara Author Suzanne Kearns