I work for a nonprofit organization, and I’m not sure if we are under tax-exempt status or not. However, we’re looking into selling things as fundraising, such as small baked goods or other refreshments at events to raise money. Would we be exempt from paying taxes on those items, or would we have to itemize and pay?
Sales tax is a complicated area, so the easiest way forward is to break down the issue into a couple parts. Note that this answer applies only to Pennsylvania. Each state sets its own sales tax related regulations.
General Sales Tax Exemption
As a nonprofit organization in Pennsylvania, your organization is eligible for a sales tax exemption on items you purchase for use in the operation of the nonprofit for its charitable purpose. To get the state sales tax exemption, you need to file an application with the state.
If your nonprofit event is in support of a sports program, a specific sales tax exemption exists for the sale of food and beverages. See if you qualify for that exemption.
If your nonprofit event does not support a sports program, the general sales tax exemption and the sports event specific exemptions would not apply. However, your organization can file for the exemption as a reseller, as you are buying food items specifically to sell to others.
The resale tax exemption will eliminate the sales tax on items purchased by the nonprofit for resale. However, the ultimate sale to the public has a sales tax liability that the nonprofit needs to collect and remit to the state.
For both the reseller exemption and to charge sales tax to the customer, the nonprofit will need to register for a sales tax number.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.
Answered by: Michael F. Cade, CPA, CGMA, is a strategy consultant and executive coach for MFCCoach LLC in Morrisville, Pa.