Do Nonprofits Need to Pay Sales Tax on Fundraising Merchandise?
Many nonprofit organizations sell merchandise such as t-shirts, hats, and other items to raise funds for their programs and services. However, whether or not a nonprofit needs to collect and remit sales tax on these sales will depend on the state in which the organization is located.
In some states, nonprofits are exempt from collecting sales tax on merchandise sold for fundraising purposes. These states may have specific exemptions or thresholds for nonprofit organizations, and it's important to consult with a tax professional or an attorney in your state to determine your specific obligations.
For example, in Texas, nonprofits that sell items exclusively for fundraising purposes may be exempt from collecting sales tax. However, in California, nonprofits are generally not exempt from collecting sales tax on sales of merchandise, even if the proceeds are used for charitable purposes.
It's worth noting that even if a nonprofit is exempt from collecting sales tax on fundraising merchandise, it may still be required to obtain a sales tax exemption certificate from the state. This certificate will allow the nonprofit to purchase merchandise without paying sales tax, but it does not necessarily exempt the nonprofit from collecting sales tax on sales to customers.
If your nonprofit sells merchandise for fundraising purposes, it's important to consult with a tax professional or an attorney in your state to determine your specific obligations. Failure to properly collect and remit sales tax when required can result in penalties and fines, which can be detrimental to your organization's financial health.
In addition to the legal implications of sales tax, it's also important to consider the impact on your fundraising efforts. If customers are required to pay sales tax on fundraising merchandise, it may reduce the amount of money they are willing to spend, which could ultimately impact your organization's ability to achieve its fundraising goals.
To sum up, whether or not a nonprofit needs to pay sales tax on fundraising merchandise will depend on the state in which the organization is located. It's important to consult with a tax professional or an attorney to determine your specific obligations and to consider the impact of sales tax on your fundraising efforts. With careful planning and compliance, your nonprofit can continue to raise funds and achieve its mission.
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After a project is done with its 'Model A' fiscal sponsorship relationship, they need to become self-sufficient in managing their nonprofit program and resources. To help with this, Social Impact Commons has provided a basic checklist that outlines the steps necessary to launch the project as an independent organization.