Do you have to pay sales tax if you are a nonprofit organization? If you are in Nebraska, you usually have to. Since sales tax regulations vary greatly by state, I can’t address all of the different types, but I’ll give an overview of what Nebraska requires.
In general, nonprofits have to pay sales tax when they purchase items, and collect sales tax when they sell things. This includes any purchase made at a store or online, and any sale whether it is event ticket sales, silent auction items or t-shirts. While this adds to the cost of doing business, sales tax is then used to fund all the great services in our cities and state including roads, social services and libraries, so it has value to us all ultimately.
Sales tax is paid based on a transaction. Whether you buy a used or new item, whether you rent an item or barter something, all of those are taxable transactions.
Use tax is the tax that is paid if sales tax isn’t paid. For example, if you make an online purchase, but don’t pay Nebraska sales tax, you are required to pay it as use tax when you file your tax return. In addition, if you buy items for resale, such as t-shirts, you can request to not pay sales tax by giving the vendor a Form 13. However, if you give away some of those t-shirts, you will need to pay use tax, since you didn’t originally pay sales tax on them.
All event admission tickets are taxable. You can include the tax in the price of the ticket, as long as you clearly state that. At a nonprofit I worked for, we charged $75 for a ticket to our annual fundraiser event. We calculated the value of the meal to be $25, which allowed us to charge sales tax as $1.75 on just the $25. (The remaining $48.25 would be considered a tax donation.) If you don’t want to pay sales tax, you can make the admission charge a “free will donation” but you can’t suggest a dollar amount, as once you do that, it will be taxable.
When someone wins an item at a silent auction, they also need to often pay sales tax on those items. Food items and gift certificates for a certain dollar amount aren’t taxable, but a painting, necklace or gift certificate for an oil change are taxable.
Here’s a few examples:
Great Nonprofit wants to sell t-shirts for their upcoming fundraiser. They purchase fabulous t-shirts from a local company for $8 each. If they give that company a completed Form 13, they won’t have to pay sales tax on the purchase, since they are planning to resell the shirts. When they sell the shirts for $20 each, they collect sales tax on each sale and record it. They also give 10 t-shirts away to volunteers and staff. They need to pay use tax on those shirts, since they didn’t pay sales tax originally. (Luckily, though, for those they gave away they can just pay the use tax on the $8 original cost rather than the $20.)
At Fabulous Event, George wins three items on the silent auction. The first item is a painting by a local artist. He will need to pay sales tax on the total cost of the painting, or the value of the item printed on the bid sheet, which ever is lower. The second item is a gift certificate for $50 to a local store. This is not taxed since he will pay sales tax when he buys items at that store. The third item is a basket of local foods. This is also not taxed since it is more than 50% food items, which are a nontaxable expense.
For additional information, consult the Nebraska Taxation of Nonprofit Organizations guide from the Nebraska Department of Revenue. You can fill out the forms to register to collect sales tax on the Department of Revenue’s website. For more information, contact Steve Drzaic, who provides tax payer assistance for the Nebraska Department of Revenue at 402-595-2078 or firstname.lastname@example.org.
For states other than Nebraska, please consult your local department of revenue for your sales tax laws. This article contains more general guidance for other states.
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