NDOR provides the following example in the Nebraska Taxation of Nonprofit Organizations Guide:6 “Example 1: A nonprofit organization holds a pancake feed in Lincoln. The amount charged to contributors is $15. The fair market value of the pancake meal is $5. The organization indicates on the ticket: Pancakes $5.00 Tax @ 7% .35 Contribution 9.65 Total $15.00 The organization will remit 35¢ for each pancake meal.” By contrast, if the sales tax is not separately listed, the entire transaction is subject to sales tax:7 “Example 2: A nonprofit organization offers a big screen TV (provided by the local furniture store) or one year of house cleaning service (provided by a local house cleaning business) in exchange for a contribution. The amount of the contribution is $3,000. The TV and the house cleaning service are each valued at $1,000 (fair market value).” If the receipt only references the $3,000 contribution, then the organization must collect and remit sales tax on the total. If, however, the receipt states that the fair market value of the TV or the cleaning service is $1,000, then sales tax is collected and remitted only on such amount, significantly reducing the amount of sales tax owed. Accurately disclosing, calculating, collecting, and paying sales tax can have a significant impact on an organization, both legally and financially. PENALTIES FOR NOT REMITTING SALES TAX In the case of fundraisers, failure to file and failure to pay penalties can rack up quickly. The penalty for late filing sales tax is the greater between 10% of the unpaid tax or $25, plus interest as specified under Neb. Rev. Stat. § 45-104.02.8 Additionally, willfully failing to collect, account for, or pay sales tax in Nebraska could result in a Class IV felony.9 If the Nebraska Department of Revenue were to audit an organization, it would likely be over a period of years and would implicate many fundraising events, meaning exposure could be significant. CHARITABLE CONTRIBUTION SUBSTANTIATION LETTER Relatedly, nonprofit organizations hosting fundraisers are often auctioning taxable goods or services that implicate their substantiation requirements. After making a donation of more than $250 to a charitable fundraiser, the donor may be able to claim a deduction on their tax return. To claim a charitable contribution deduction on a federal income tax return, the donor must obtain a contemporaneous written acknowledgment from the charitable organization.10 On the other side of the transaction, nonprofit organizations are required to provide donors with a written disclosure statement when donors receive goods or services after making a contribution of $75 or more. The written statement should include: the name of the organization; the contribution amount; a description of any property contributed; a statement that goods or services were not provided by the organization in exchange for the contribution, if applicable; a description and good faith estimate of fair market value of the goods or services provided by the organization in exchange for the contribution, if applicable; and a statement explaining the intangible religious benefits received in exchange for the contribution, if applicable. For fundraisers, an exception exists for goods or services considered to have insubstantial value and thus do not need to be described on the written statement.11 CONCLUSION Overall, it is important for nonprofits to be aware of their obligation to remit sales tax unless they have one of the four exemptions and are approved by the Nebraska Department of Revenue. Failing or incorrectly remitting sales tax can have serious implications for an organization, so it is imperative the organization is accurately recording and paying sales tax. Hannah Fischer Frey is a partner at Baird Holm LLP, focusing on corporate transactions, federal and state tax planning issues, and tax-exempt matters. Fischer Frey has addressed complex partnership and corporate tax issues, including business reorganizations, private equity fund structuring, business succession planning, and tax planning in mergers and acquisitions. She has been closely involved in numerous federal and state tax examinations and audits. Linnea Jorgenson was a summer associate for the firm. For more information, call (402) 344-0500 or email hfrey@bairdholm.com. 1 Information Guide, Nebraska and Local Sales Tax, https://revenue.nebraska.gov/sites/default/files/ doc/info/6-352.pdf. 2 Nebraska Exemption Application for Sales and Use Tax, https://revenue.nebraska.gov/sites/default/ files/doc/tax-forms/f_4.pdf. 3 There is an exception if the fundraising event is resulting in admission to an event or place, a transfer of property, or a taxable service such as pest control or building cleaning. https://revenue.nebraska.gov/sites/default/files/ doc/info/7-215.pdf. 4 316 Neb. Admin. Code Ch. 1, § 090.09A. 5 Id. at § 090.09C. 6 The Nebraska Taxation of Nonprofit Organizations, https://revenue.nebraska.gov/sites/default/files/ doc/info/7-215.pdf. 7 The Nebraska Taxation of Nonprofit Organizations, https://revenue.nebraska.gov/sites/default/files/ doc/info/7-215.pdf. 8 Neb. Rev. Stat. §§ 77-2708(c); 45-104.02(1). 9 Id. at § 77-2713(1). 10 Charitable Contributions, https://www.irs.gov/pub/ irs-pdf/p1771.pdf. 11 Goods or services have insubstantial value if the fair market value of the goods and services received by the donor does not exceed the lesser of 2% of the total payment by the donor or $125; OR, if the donor’s contribution is more than $62.50 and the goods and services provided have the organization’s name or logo and are less than $12.50 in value. https://www.irs.gov/pub/irs-pdf/p1771.pdf. CONTINUED FROM PAGE 11 12 Nebraska CPA
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