School Fundraiser Tax: How it May Affect You

Learn the facts about school fundraising sales tax.

You're diligent about every little detail. Your team has been working hard because you know you must maximize your limited fundraising opportunities. You've researched the types of products you feel will sell best for your area and meticulously planned how to motivate your students best to make sales.

You even sat down with a group of parents to discuss the most pressing needs to establish a good purpose for your school fundraiser.

You're all set. Everyone on the planning team feels ready. What more is there to think about?

There is one thing many nonprofit groups either overlook or assume doesn't apply to them. Sales tax. Have you considered whether your sale will be taxable or not?

You may think, "We're a not-for-profit, so we're automatically tax-exempt". Not so fast. Your school may be obligated to pay sales tax after all. A distinction needs to be made between income tax and sales tax. Income tax may be exempt under IRC 501(c) rules; however, sales tax depends on individual state rules.

The most commonly recognized 501(c) is 501(c)(3), which is primarily related to religious, charitable, scientific, and educational purposes. Of course, the types of entities that we're focusing on here are public and private schools. As it turns out, most states require the payment of sales tax unless the state allows for an exemption. Not all states do.

Arizona is one state that doesn't provide nonprofit entities with an overall exemption. Schools and other nonprofit entities are subject to Arizona TPT (Transaction Privilege Tax) and Use tax.

Another example is Texas. Schools must pay sales tax if they're doing a catalog sale. They're acting as an 'agent for the seller'. The 'seller' in this case is the company that is not tax-exempt. And because the school is using the company's materials to generate sales, the tax must be collected and remitted to the state.

As it turns out, there's a lot of confusion about this. While many nonprofits question it, others assume they're tax-exempt and don't bother to confirm one way or the other.

7 Primary School Fundraiser Tax Situations

Depending on your state, your school may be required to pay taxes. You may fall into 1 of the following seven categories:

1. Not tax exempt.
2. Tax exemption certificate required.
3. Allowed a defined period of tax-free days to have a school fundraiser.
4. Limited to a certain number of tax-free sales days per school year.
5. Only certain types of sales are eligible for tax exemption. (I.e., purchasing product up front)
6. Type of product sold (I.e., non-prepared food like cookie dough may not be taxable).
7. You are not required to pay taxes.

Of course, we all know that tax is a complicated subject, so there may be other variables to consider for your state. But if you know that your school must pay sales tax, here are other things to consider.

Tax on Retail or Wholesale?

Ok, so you need to pay sales tax, but on what? Some states require tax collection on retail, while others, only on the invoice or wholesale amount.

The retail amount is the price your customers pay, as shown in a brochure. Or, you may only pay tax on the billable amount. In other words, the amount that you pay the company.

For example, if you're paying tax on the wholesale and an item is priced at $10, then you would pay tax on the $6, assuming that you're making 40% profit.

On the other hand, you would pay tax on the entire $10 if your state requires that you pay tax on retail.

Every state has different tax rates, which may be based on your local and statewide rates. For more information, see our brochure sales tax guide.

Tax-Included School Fundraiser Brochures

Your company may offer to collect and remit the tax on your behalf. If you work with one that doesn't, you'll be responsible for paying the tax yourself. You can always ask your students to collect the additional tax with each transaction, which may hamper sales. If schools want to do this, we provide tax charts.

However, there's an easier way. Instead of having your sellers collect the additional tax, some companies offer the same brochure with slightly higher-priced items. This will help offset the tax difference so schools can retain more profit. Plus, it doesn't potentially slow down the sales process with tedious tax calculations.

Consider the tax as being collected with the retail amount in this case. You'll still make a profit off of the retail while at the same time taking care of your tax obligation. Otherwise, you'll only options are to pay the tax out of your profit or go to the trouble of having your sellers collect the additional tax amount.

You have nothing to worry about if you're not required to pay sales tax in your state. However, before you start your fundraiser, confirm this with your school district or state Department of Revenue first.

Learn how to handle sales tax for brochure fundraisers

Author Bio

Clay Boggess has been designing fundraising programs for schools and various nonprofit organizations throughout the US since 1999. He’s helped administrators, teachers, and outside support entities such as PTAs and PTOs raise millions of dollars. Clay is an owner and partner at Big Fundraising Ideas.