Arkansas Opinion Recasts Light on the Taxability of Sales Made by Charitable Organizations
The State of Arkansas recently released an Opinion Letter (Revenue Legal Opinion No. 20140807, Arkansas Department of Finance and Administration, December 18, 2015) that is a good reminder of the difference between rules that exempt a charitable organization from paying sales tax on the purchase of tangible personal property (goods and materials) and their obligation to collect tax on sales of items they make to others.
Many states offer qualified charitable organizations an exemption from sales tax on the goods and services that the organization purchases to use internally in promoting their cause or mission. This exemption is often misunderstood and the organizations believe it also exempts them from collecting sales tax on items they sell to the public. This is not the case.
Sales of tangible personal property that organizations make, even though almost always for fund-raising purposes that will, in-fact, help advance the cause of the organization, are subject to the same sales tax rules that apply to for-profit entities making similar sales.
While the rules vary by state, there are usually limited exemptions from collecting sales tax that can apply, but it is important to understand the details. For example, a state may allow an exempt organization an annual “tax-free” forty-eight hour sale that will allow them to operate a swap meet, yard-sale or other bazaar-type event without the obligation of collecting tax, but the same organization’s sales of their cookbooks throughout the year are subject to sales tax. Or a state may allow exempt organizations to sell items to members exempt of tax, but tax is due on the sale of the same items to the general public.
Exempt entities that make sales are also often subject to the same sales tax audit process as for-profit sellers, and not understanding how the exemptions apply and when tax must be collected can leave a charitable organization with a large tax bill that actually diverts these hard-earned funds from use for their cause.
State Tax Advisors, LP is multi-state State and Local Tax consulting firm that specializes in questions related to sales and use tax. Our professionals are well versed in the exemptions from sales tax offered to qualified organizations on both purchases and sales. Contact us for a review of your organizations activities to determine if you have any potential sales or use tax liability.