1. Not all purchases are exempt from sales tax
It truly depends on the use of the item and the nature of the nonprofit. Many organizations think that just because they have obtained a 501 (c)(3) letter, they are exempt. This couldn’t be further from the truth.
2. Not all sales are exempt from sales tax
Nonprofits need to understand the type of sale and who it’s being made to and what the proceeds are being used for before they can exempt a sale (auction, spirit items, booster club fundraiser, etc.).
3. Property tax bills can omit exemptions
Nonprofits are historically missing exemptions related to property owned and used in the mission of the charity. This is an important exemption that is easily filed with the county and not taken advantage of. Check your property tax bill to make sure the appropriate exemptions have been applied.
4. Unrelated Business Income’s impact on sales tax exemptions
Much like item 2, understanding the type and later use of the sale is essential. If misunderstood or reported incorrectly, this can have a significant impact in the eyes of a Department of Revenue staff member and could affect the overall status of the nonprofit from a transaction tax and income tax perspective. For example, if a church were to lease a portion of its property to someone selling Christmas trees and not take the profit as income, any revenue received would be considered unrelated business income because the income is not specific to the church’s mission.
5. Operations in multi-state environments
Not all states are created equal, and some states treat nonprofit organizations much differently than the state of Georgia. It’s truly important for your organization to understand and comply with state regulations. Nonprofit status granted by one state does not mean the state next door adheres to the same exemptions and rules.
How can a nonprofit ensure that sales tax has been paid on a product donated?
- Receiving an item for an auction can be complex in some circumstances, because as a nonprofit you might be assuming a sales tax liability if the original owner did not pay sales tax on the purchase of the item being donated. Georgia has strict rules on “withdrawals from inventory” related to sales tax and donated items. Ultimately, you’ll want to check with the business or individual donating the item to understand how it was acquired. Based on the business or individual’s answer, we can help you determine who’s ultimately responsible for paying (if any) sales tax on the item in question.
Cups, straws, napkins, plates … are these exempt from sales tax?
- Georgia considers the sales tax on items of single use (napkins, straws, condiments, plastic ware /utensils) to be included in the cost of the meals sold. The tax on the products or single items would have typically been charged on the meal cost to the organization providing the meal. Now, since nonprofits are exempt from collecting tax from a consumer of their meal sales, that doesn’t prohibit the state from denying the exemption due to your nonprofit status. It only further enhances the ability to exempt these types of items.
Smith & Howard’s Sales and Use Tax team brings value to clients across the nation. As a nonprofit, understanding how sales and use tax can impact your business is essential. If you have any questions about sales tax for your nonprofit, please feel free to contact Tim Howe, CPA at 404.874.6244.