Sales Taxes on Fundraising Auctions
Posted on Wednesday, November 23, 2022
ShareDoes your organization hold fundraising auctions? Do you collect sales tax? Should you?
In Indiana, until July 1, 2022, nonprofit organizations that sold the tangible personal property to further the qualified nonprofit purposes of the organization for not more than 30 days in a calendar year were exempt from sales tax. So if your organization made available items for sale for less than 31 days, you did not need to collect and remit sales tax.
Beginning July 1, 2022, the 30-day rule was repealed and replaced. Instead of the 30-day rule, if nonprofit organizations sell tangible personal property and have sales of not more than $20,000 in a calendar year, they are exempt from sales tax. So if your organization sells items and has $20,000 or more in sales during the year, you must collect and remit sales tax.
There is no change in the items being taxed under the $20,000 rule. For example, the sale of periodicals or books that are intended primarily to further the educational, cultural, or religious purposes of the organization are still exempt; the 30-day/$20,000 cap does not apply to these items. However, some organizations may need to start paying sales tax that have not had to before.
Nonprofit Sales Tax Example
For example, Nonprofit A has not sold any tangible personal property before their annual fundraiser. Nonprofit A holds its annual fundraiser, which includes an auction of tangible goods and raises more than $20,000 in sales. Because more than $20,000 of sales were received from the sale of tangible items at the event, the organization must now register to collect and remit sales tax with the Indiana Department of Revenue to get a Retail Merchant Certificate. If Nonprofit A sells any additional items after the fundraiser through the end of the year, it must collect and remit sales tax since it has met the $20,000 cap for the year. The subsequent sales include all sales made by all types of activities and by all units operating under the organization. For example, if Nonprofit A has multiple locations and its second location decides to hold a fundraiser later in the year, and it also has an auction of tangible personal property because Nonprofit A already met the $20,000 cap for the year at the first event, any sales received at the second auction must have sales tax collected. The amount of sales tax collected should be based on the total amount received for each auctioned item as opposed to the fair value of the item. For example, a signed jersey is purchased for $1,000 by the winning bidder, but the jersey's value is only $750. Sales tax should be collected on the full $1,000 received, not the $750. In a different scenario, Nonprofit A did not have a second location with a second fundraiser but decided to sell t-shirts to raise additional funds. $3,000 in t-shirts were sold after the first fundraising auction. Again, because the $20,000 cap was met with the initial fundraiser, sales tax should be collected on each t-shirt sales. Before July 1, 2022, the nonprofit was likely exempt from collecting sales tax since the days available for sale were less than 31 (1 day for the first auction + 1 day for the second auction = 2 days or under the second scenario 1 day for the first auction + 5 days for t-shirt sales = 6 days). Still, under the new rules, it now is required to collect sales tax.
Nonprofit Sales Tax Collection
When collecting sales tax, the organization must disclose to the buyer that the sales tax is included in the purchase price if the organization wants to use the funds received in the auction sale as payment for the sales tax. If the organization does not disclose that sales tax is included in the purchase price, the payment of sales tax must be taken from other organization funds. For example, with the purchase of the signed jersey in the auction, if the organization discloses that the sales tax is included in the auction bid ($1,000) then part of the $1,000 represents sales tax that will be remitted to the State by the nonprofit and partly represents the sales price that the organization will keep. If the organization does not disclose that sales tax is included, the full $1,000 for the signed jersey represents the sales price. The organization must use funds from another source (i.e., its operating funds) to pay for the sales tax due to the State.
Many organizations that auction tangible items at their fundraising events have not had to collect sales tax in the past due to the 30-day rule; however, the $20,000 rule could change this. Ensure your organization understands how the change in Indiana sales tax rules for nonprofits impacts your specific activities and that you properly collect sales tax when required.
Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors
Posted in Mission Minded Nonprofits
Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.