TAX TIPS FOR NONPROFIT FUNDRAISERS BY HANNAH FISCHER FREY & LINNEA JORGENSON, BAIRD HOLM LLP NONPROFIT ORGANIZATIONS ARE OFTEN created and designated as Section 501(c)(3) entities under the Internal Revenue Code, which leads many organizations to believe they are not responsible for various types of taxes. In particular, nonprofit organizations selling items in fundraising settings often operate under the false assumption that they do not need to collect and remit state sales tax. Practitioners should flag this issue for their nonprofit clients and help them navigate compliance with state sales tax obligations. In Nebraska, there are four groups of sales tax exemptions:1 retailer-based (often implicated in fundraisers) buyer-based product-based use-based Qualifying for exemption via any of the categories is somewhat rare and we urge nonprofit organizations to assume they are subject to sales tax, unless they can establish otherwise. Further, certain of those exemptions require confirmation of exemption via filing Form 4 with the Nebraska Department of Revenue (NDOR).2 SALES TAX ON FUNDRAISING EVENTS In the case of fundraisers, nonprofit organizations operate as a retailer of tickets and products (e.g., donation baskets, auctioned items, etc.). Many nonprofit organizations operate under the false assumption that selling tickets to, or selling products at, a fundraiser does not trigger sales tax. But unless a nonprofit organization qualifies for exemption via one of the above-listed groupings and, if applicable, is approved as sales tax exempt by NDOR, it must collect and remit sales tax on items sold at a fundraising event.3 Just like any other retailer, nonprofits must calculate market value of the ticket or item prior to the event, and they are required to indicate this value on a separate line item on the invoice.4 If there is not a separate line item on the invoice, and fair market value of the good or service cannot be calculated, then the total amount on the invoice becomes taxable5 and the nonprofit is likely responsible for paying sales tax on the entire invoice. This can be significantly more than the price of the product or service being offered and may cost the organization more money for failing to separate out the market value of the goods and services from the total donation amount. Accordingly, nonprofit organizations must identify both the fair market value and, relatedly, the amount of the donation on any item sold. CONTINUED ON PAGE 12 11 nescpa.org
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