Terrie on
Nonprofits ©
June 2005
Yes Virginia, There Is a Sales Tax Liability
Q: How brave are you? Can you help us nonprofits
understand our responsibility for paying sales
tax on auction items sold at our fundraisers?
We recently had a corporate partner for our
gala. However, to receive the promised donation
it mandated we pay sales tax on all auction
items sold at the event because, they said,
the State requires this. I question if many
charities know this, let alone comply. Want
to take this on?
A:
I’m fearless – as long as people
remember I’m just the messenger and don’t
shoot!
According
to my contact at the Florida Department of
Revenue there is nothing in writing specifying
that nonprofit organizations have to pay or
not pay sales tax on such items. However, he
hastened to add that the law does state that
any organization in the State of Florida – exempting
churches and the federal government – has
to pay sales tax on the sale of tangible property.
I
dug further. I figured that even if the rules
leaned in the direction of having nonprofits
pay sales tax surely they’d be exempt
because auctions are isolated sales events – the
ruling under which individuals can hold a limited
number of garage sales a year without collecting
and paying sales tax. What I found was not
good news. If, as many organizations do, you
use a professional auctioneer the isolated
sales exemption does not apply. In fact, this
is also the case if you use any agent, broker
or other licensed dealer required by law to
collect and remit tax.
I
hear some of you saying you do only silent
auctions. You don’t need an auctioneer – professional
or otherwise. The news gets worse. The isolated
sales exemption doesn’t apply if sales
tax has never been paid on the items in question.
Since most auction items are donated by wholesale
or retail concerns that purchase their goods
without paying sales tax, expecting to collect
and remit the sales tax once the end user purchases
them, the final seller – your organization – has
to be responsible for seeing that the State
gets its share.
Your organization might be able to get around
this if it only auctions off non-taxable services
or if it can demonstrate that the items being
sold directly further the mission of the organization
in some way. For example, an organization training
the unemployed to manufacture jewelry could
say it was providing additional experience
for its clients by auctioning off their finished
products. As always, I recommend speaking with
your accountant.
Reporting sales tax is simple enough. It can
be done online. Go to www.myflorida.com/dor and click on e-Services. If you do not have
Internet access, you can fax your form request
to the DOR Distribution Center at 850-922-2208
or call 850-488-8422.
Terrie
Temkin, Ph.D. is an internationally recognized
governance and planning expert. She is
president of NonProfit Management Solutions,
Inc.,
a principal in CoreStrategies for Nonprofits,
Inc., and a longtime member of AFP. Contact
her at terriet@nonprofitmanagementsolutions.com,
954-985-9489, or 866-985-9489.
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