Nonprofit Organizations Purchases & Sales

Nonprofit Organizations Purchases & Sales Stefanie Medack Texas Comptroller of Public Accounts TSCPA Nonprofit Organizations Conference May 24, 2016

Today s Presentation Exemption on purchases Collection on sales

Did you know? Nonprofit tax exempt Sales tax exemption not automatic Public list to verify exemption comptroller.texas.gov/taxinfo/exempt/exempt_search.html

Texas Tax Code Chapter 151 (Limited Sales, Excise and Use Tax) Taxes most tangible personal property (TPP) and some services

Sales Tax Exemptions Tax Code Sections 151.301 151.399 Section 151.309 Government entities Section 151.310 Certain nonprofit organizations

Government Entities Tax Code Section 151.309 Sales Tax Rule 3.322(c) US Federal government entities The State of Texas and its political subdivisions

Certain Nonprofit Entities Tax Code Section 151.310 Sales Tax Rule 3.322(b) Religious, educational or charitable IRS 501(c)(3), (4), (8), (10) or (19) Youth athletic organizations Volunteer fire departments Chamber of commerce or tourist/promotional agency

Comptroller Applications Federal Exemptions - AP-204 Charitable - AP-205 Educational - AP-207 Religious - AP-209

Texas Sales and Use Tax Exemption Certificate Form 01-339

FYI Notify Comptroller of change that may affect exempt status Can be audited by Comptroller to verify exempt status Can be liable for paying taxes if exempt status revoked

Website: Comptroller.Texas.Gov Tax Help: comptroller.texas.gov/taxhelp

Collection of Sales Tax Collect or Not Collect?

Frequently Asked Questions 1. Nonprofit pays tax on taxable items it will sell. Must it collect tax when it sells those items? Tax has already been paid, right? Collect tax unless the item is nontaxable or is sold during a qualifying tax-free sale event.

Frequently Asked Questions 2. Nonprofit collects used or donated items to sell. Does it have to collect tax when it sells those items? The nonprofit must collect tax unless the item is nontaxable or it sells the taxable item during a qualifying tax-free sale event.

General Principles Nonprofit that sells taxable goods or services must get a sales tax permit and collect and pay the sales tax unless ALL sales are not taxable. Sales of tangible personal property are taxable unless an exemption exists for the item. If a sale is made for which an exemption is not available, then collect tax.

Two Tax-Free Sales Days Tax Code Section 151.310(c) Sales Tax Rule 3.322(h)(1) and (2) A 501(c) (3), (4), (8), (10), (19) or charitable/educational/religious organization can: Hold 2 tax-free sales days, with each day 24 consecutive hours only Can be back-to-back days for 48 hours Designate tax-free in advance Notify customers of tax-free sale

Two Tax-Free Sales Days (cont d) Items for $5,000 or less (can exceed if manufactured by nonprofit or not sold to donor) Multiple qualifying exempt organizations sale event = a sale for each organization Can t collect the tax and keep it under the taxfree sale provision Issue resale or exemption certificate to purchase taxable items for resale

Two Tax-Free Sales Days (cont d) Advanced orders, pre-orders/pre-sales, orders taken over a period of time with delivery at a later date Surplus inventory Sold out items Note calendar year Reporting

Volunteer Fire Departments Tax Code Section 151.310(c-1) 10 per calendar year. No more than 72 hours Count as a sale for each group if jointly held

Nontaxable Food Products Sales Tax Rule 3.293 Boxes of fruit Frozen cookie dough, pizza kits (kit only--no tools). Mixes to be prepared at home (e.g., soup, dessert, bread, dip, pancake) Fresh cracked nuts Cheese spreads Bottled sauce, salsa, jelly, syrup

Exempt Baked Goods Sales Tax Rule 3.293 Exempt when sold without plates or other eating utensils Eating utensils include plates, bowls, spoons, knives and forks Pies, cakes, cookies, doughnuts, pigs-in-a-blanket, biscuits, bagels, baked goods with ingredients baked inside

Annual Food Sale Volunteer nonprofits can hold tax-free food sale if: Not professionally catered Not held in a restaurant or hotel Not in competition with a retailer Food prepared by group s members STAR 200204972L

Intangibles No sales tax on the sale of intangibles: Gift certificates Gift cards Discount cards Coupon books Raffle tickets? Beware! www.texasattorneygeneral.gov

Annual Sales Tax Holiday August 5-7, 2016 Sales Tax Rule 3.365 Most clothing & footwear under $100 Backpacks for elementary/secondary Specific school supplies for elementary/secondary

Nontaxable Services Examples of nontaxable services: Carwash Pet sitting or walking Baby sitting Face painting Cosmetology services

Donations Donations not taxed, but take care in giving an item for the donation (baseball cap = donation amount) When is a donation a sale? Mandatory and commensurate

Donations (cont d) Sales Tax Rules 3.285 and 3.287 Anyone can purchase taxable items to donate to certain exempt entities tax free with exemption certificate Item cannot be used before donating Seller can donate unused inventory

Donation or Sale?

Fundraising Companies Sales Tax Rule 3.286(d)(5) and Rule 3.322(h)(3) Nonprofit acts as sales representative for a for-profit fundraising company. Uses marketing materials (catalog, brochures, sales form) of the for-profit fundraising company. For-profit fundraising company coordinates the fundraising event. Fundraising company is the seller.

Fundraising Companies (cont d) Fundraising Company Collection responsibility; reports and pays tax to Comptroller Instructs nonprofit on how to collect tax May price taxable items with tax included or collect tax on sales price

Fundraising Companies (cont d) Nonprofit Organization Forward tax collected to fundraising company Does not issue exemption or resale certificate to fundraising company Does not count against one-day, tax-free sale day

Food Sale Exemptions Tax Code Section 151.314(d) and (e) Sales Tax Rule 3.293

Amusement Services Tax Code Section 151.3101 Sales Tax Rule 3.298 Exempt if other than IRC 501(c)(7) Does not benefit one individual Can hire a for-profit to produce the amusement if nonprofit held out as provider in brochures, flyers, tickets, ads, etc.

Exempt Writings Tax Code Section 151.312 Sales Tax Rule 3.299(d) Writings published and distributed by nonprofit religious, philanthropic, charitable, historical, scientific or other similar organization are exempt. Similar organization = 501(c)(3). Not educational group. Exempt writings include books, brochures, magazines, newsletters. Items that can be read, but primarily serve other purposes, are taxable (bookmarks, clothing, posters).

Senior Citizens Groups Tax Code Section 151.332 Sales Tax Rule 3.316(j) Taxable items made or assembled by persons 65 years or older Sale held or sponsored by nonprofit organization to provide assistance to elderly persons Maximum 4 fundraising events per calendar year for a total of no more than 20 days

University & College Student Organizations Tax Code Section 151.321 Sales Tax Rule 3.316(k) 1 day, tax-free sale per month Fundraiser for school certified group, if group not formed primarily for profit Items for $5,000 or less Additionally, exempts first $5,000 of other sales of taxable items

Certification by University or College Send list of its registered or certified student organizations to: Exempt Organizations Section Tax Policy Division Post Office Box 13528 Austin, Texas 78711-3528

Nonprofit Animal Shelters Tax Code Section 151.343 Sales Tax Rule 3.316(m) No tax due on the sale of the animal or acceptance of an adoption fee Sales of accessories are taxable

Registration for Sales Tax Permit Apply at Comptroller.Texas.Gov Apply by mail Apply at a local comptroller field office

Sales Tax Permit

Resale Certificate

Collecting Texas Sales and Use Tax State sales and use tax rate is 6.25% Local taxing jurisdictions up to 2% Total maximum combined rate is 8.25% Separately state tax, or May include tax in the price.

Backing Out Tax Sales Price Divided by 1.(Tax Rate) = Tax Base Sales Price Tax Base = Sales Tax Example: Sales price is $11, including tax. Tax rate is 8.25%. $11 / 1.0825 = $10.16 $11 - $10.16 = $0.84 (tax)

Reporting and Paying File a return even if: You do not receive in mail No taxable sales Receive a estimated billing Keep contact information current $50 penalty on late returns even if no tax is due!

Reporting and Paying (cont d) File returns: WebFile Mail In person No tax due only file through TeleFile at (888)4-FILING (888-434-5464)

Reporting and Paying (cont d) Collect Less than $1,000 in tax Collect Between $1,000 and $1,499 in tax Collect Over $1,500 in tax

Reporting and Paying (cont d)

Yearly Due January 20 th Quarterly Monthly 1 st (Jan. March) Due April 20 th 2 nd (April June) Due July 20 th 3 rd (July- Sept.) Due Oct. 20 th 4 th (Oct. Dec.) Due Jan. 20 th December Due January 20th January Due February 20 th February Due March 20 th March Due April 20 th

Filing Sales Tax Returns

Website: Comptroller.Texas.Gov Tax Help: comptroller.texas.gov/taxhelp

General and Private Letter Rulings comptroller.texas.gov/taxinfo/letters31.html

Helpful Information Sales Tax Rules: Rule 3.285, Resale Certificate; Sales for Resale Rule 3.286, Seller s and Purchaser s Responsibilities Rule 3.287, Exemption Certificates Rule 3.293, Food; Food Products; Meals; Food Service

Helpful Information (cont d) Rule 3.298, Amusement Services Rule 3.299, Newspapers, Magazines, Publishers, Exempt Writings Rule 3.316, Occasional Sales Rule 3.322, Exempt Organizations Rule 3.365, Sales Tax Holiday Clothing, Shoes and School Supplies

Helpful Information (cont d) Publications: 94-115, Ready-to-Eat Food 94-183, School Fundraisers and Texas Sales Tax 96-122, Exempt Organizations Sales and Purchases 96-280, Grocery and Convenience Stores: Taxable and Nontaxable Sales 96-1045, Guidelines to Texas Tax Exemptions 98-490, Sales Tax Holiday State Tax Automated Research (STAR) System

Resources Website Call or Email Visit

Website Comptroller.Texas.Gov

Call Center Toll free 1-800-252-5555

Direct Contact Exempt Organizations Section Call: (844) 519-5677 Email: exempt.orgs@cpa.texas.gov

Visit Field Office comptroller.texas.gov/taxinfo/fieldoff.html