Sales tax applies to the sale of tangible personal property unless the sale is covered by a specific legal exemption or exclusion. Individuals, businesses, and groups that sell taxable merchandise in places like California must pay sales tax on their taxable sales.
Similarly, “use tax” applies to the purchase of taxable merchandise that will be used, consumed, stored, or given away in this state unless the purchase is exempt or excluded from tax. Individuals, businesses, and groups must pay use tax on their taxable purchases. The state use tax is complementary to, and mutually exclusive of, the state sales tax. Tax generally applies regardless of whether the items you sell or purchase are new, used, donated, or homemade.
Although many nonprofit and religious organizations are exempt from federal and state income tax, there is no similar broad exemption from sales and use tax in places like California. Generally, a nonprofit’s sales and purchases are taxable. In other words, nonprofit and religious organizations, in general, are treated just like other California sellers and buyers for sales and use tax purposes.
However, there are special exemptions and exclusions available for certain nonprofit and religious organizations. Some organizations may not owe tax on any of their sales, whereas some organizations may owe tax on certain types of sales, but not all sales. Other organizations may be responsible for tax just like other sellers. It all depends on what type of organization you are and what your organization’s practices and activities are. Later sections of this publication provide information to help you determine which exemptions and exclusions may apply to your organization.
Nonprofits commonly conduct a variety of activities that are considered sales. These include (but are not limited to) the following:
- Sales of food, meals, beverages, and similar items under a number of different circumstances.
- Sales of tickets that buyers will exchange for food, beverages, or other physical products. • Sales of booklets, books, pamphlets, and so forth.
- Sales of tickets for fundraising events when the ticket price includes amounts for food or beverages.
- Sales of items at rummage sales, bazaars, carnival booths, community events, and other fundraisers.
- Sales of merchandise in internet, live, and silent auctions.
- Sales of tickets for game booths where prizes are guaranteed to each ticket purchaser, even when the prizes have little value. Examples include white elephant, fish pond, grab bag, and “pitch-’til-you-win” games.
Nonprofits also carry out certain activities that are not considered sales for sales tax purposes. These activities generally are not subject to sales or use tax. Examples include:
- The gifting of merchandise for a true donation: an amount someone gives your organization without expecting to receive merchandise of equal value in return. (Example: A member who donates $100 and receives a tote bag worth $5, generally is not considered a sale.)
- Sales of tickets for concerts, movies, plays, shows, and similar events when food and meals are not included in the ticket price.
- Sales of tickets for game booths and raffles when prizes are not guaranteed to every ticket purchaser.
- The sale of travel, home rentals, guide services, personal services, tutoring, and other things of value that are not physical products. • Sales of gift cards, gift certificates, and coupon books.
- Membership drives and other fundraising activities that do not involve the exchange of merchandise or that include merchandise premiums of a much lower value than the donation or membership amount.
- Sales of advertising that does not involve exchanges of merchandise or goods.
And here is an important note: nonprofit organizations generally need a seller’s permit if they make sales of goods or merchandise in California. This is true even if the sales are not taxable. In limited instances, when the organization makes sales only occasionally, we can issue a temporary seller’s permit. For more details, check out this awesome resource from the Board of Equalization. And if you’re wondering what an unrelated business income is, check out our previous article.
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