There seems to be an ongoing misunderstanding regarding fundraisers and sales tax. While many nonprofit groups challenge it, others assume they're tax exempt and don’t bother to verify.
In actuality, depending on the state, groups may be required to pay tax and will usually fall into 1 of 6 categories. One, they're not required to pay tax but must possess a tax exempt certificate. Two, the group's not exempt. Three, the group's allowed a defined time period to fundraise tax-free. Four, they're allowed a certain number of tax-free fundraisers. Five, only certain types of sales are eligible for tax exemption. Or six, groups are automatically tax exempt with no conditions.
Tax Fundraisers on Retail or Wholesale?
If you find your state does require the collection and payment of tax, you'll also need to know whether you must pay tax on the retail or wholesale price. In other words, do you pay tax on the retail price found in the brochure or just on the billable amount? The wholesale price is what you owe the school fundraising company. So for example, if an item is priced at $10 in the brochure and you are making 40% profit, then your wholesale or invoice amount would be $6. You would then be taxed based on the $6 amount if you had to pay tax on wholesale.
For more information, see our brochure fundraiser tax guide.
Tax-Included Fundraising Brochures
Many companies offer the service of collecting and paying your tax for you. They will even include the tax in the retail amount listed in the brochure. This way, the tax that you end up paying to the company will not affect your net profit. Otherwise you would need to pay the tax out of your profit or go to the trouble of having your parents collect the additional tax amount.
If nonprofit sales tax is not required in your state, you have nothing to worry about. However, we recommend confirming this with your state department of revenue first.