How to know whether you should be collecting sales tax
Many people think that nonprofit organizations don’t need to collect fundraiser sales tax. It turns out that this is one of the most confusing issues when it comes to conducting sales campaigns. Sponsors usually fall into one of two camps: 1. they’ve done their homework and understand their tax laws, or 2. they don’t have a clue but assume that since they’re raising money for their school they don’t need to worry about collecting tax.
You definitely don’t want to be in a situation where you’re collecting sales tax unnecessarily any more than you’re not collecting it when you should be. In other words, just because you’re a nonprofit organization doesn’t mean you’re automatically tax exempt. Before your next fundraiser, here are some questions that you’ll want to know the answers to:
What is My Local Tax Policy?
Every state handles tax differently. Some states don’t charge tax, like Delaware, Montana and Oregon. Other states, like New York, collect tax on the retail price while a few collect on the wholesale amount.
States also differentiate based on the type of product sold. For example, many states won’t charge tax on prepackaged food items like cookie dough. However, food that doesn’t meet certain nutritional requirements might be taxed.
For more information, see our brochure fundraiser tax guide.
What About Tax Exempt Certificates?
Some states require that you collect fundraiser sales tax unless you have the proper exemption certificate on file, while other states require that you pay the tax regardless. On the other hand, in Texas you’re allowed two 24 hour tax-free days; however certain other requirements must also be met.
What if We Have to Collect Sales Tax?
Many school fundraising companies provide sales brochures with the tax already added into the price of the items. This makes it easier on both you and your customers because no extra sales tax needs to be collected on your end. However, the tax amount would be added to your invoice. The company then pays the tax to your state’s department of revenue on your behalf.
What about Online Fundraising Sales?
Some states will charge tax directly to your supporters for online purchases. Since this is a consumer tax, you’re not responsible for it even when the school makes a profit off of the sale.
The bottom line is, before you assume that you don’t need to collect fundraiser sales tax, make sure you consult with your state department of revenue. You may be surprised at what you’ll be required to do, if anything.