Nonprofit Sales Tax - What Executives Need to Know [Video]

As an NPO executive, did you know that nonprofit sales tax may still apply to you? Although NPOs don’t pay income taxes, you do need to collect and remit sales tax if you sell items, such as t-shirts or pieces at a gift shop. With 11,000 taxing jurisdictions across 46 states, the rules and regulations are numerous and complex. Watch today’s Monday Money Moments (and skim the transcript below) to learn what every NPO executive should know about these rules.

Dana Miller (00:01): Hello, and welcome to another rendition of Monday Money Moments with myself, your host, Dana Miller from Executive Financial Insights.

(00:13): This week’s topic is on sales tax. And you have to be saying to yourself, “We’re a nonprofit. Why do we pay sales tax? That doesn’t make sense.” And that’s normally true.

Nonprofits don’t pay income taxes. However, if you are selling t-shirts or things at a museum gift shop, you do need to collect and remit sales tax.

Rules Vary by State and Jurisdiction

So understand that most states have sales taxes. There are 46 states that do, there are four that do not: Oregon, Delaware, Montana, and New Hampshire.

Of the remaining 46 states that do have sales taxes and Washington DC, there are 11,000 taxing jurisdictions.

What does that mean to you? That means complexity, lots of rules, lots of things to pay attention to. And the rules are different in every state.

(01:24): Here in the state of Colorado, we have a state sales tax. We also have local sales taxes. And then we have what’s called home rule taxes where we can file our local taxes through the state. The state collects it all and then remits it to our local municipalities.

However, little bit of complexity here, every single county and even cities have their own sales taxes. So wherever you are living, you need to make sure you are aware of what those rules are.

The Nexus Rule

(02:11): And what if you sell things online? Then there’s a whole production that goes with that. There’s something that’s called nexus rule.

And nexus is basically rules about who owes taxes to where. And those rules are different, of course, in each place.

Now some of those rules might mean if you have an employee in a particular state, that may constitute nexus, meaning that you have jurisdiction in that state and therefore you pay sales tax in that state. If you ship to a state, you may be paying sales tax in that state. If you manufacture in that state or you have a distribution warehouse in that state, you may have nexus.

The Wayfair Rule

(03:11): Now do note that a few years ago, there was something I believe it was in South Dakota called the Wayfair rule and it went to the Supreme Court.

And essentially, yes, we all have to pay sales taxes, but states are lowering their threshold for what constitutes a taxable item and taxable amounts. And so, some states are saying anything, any sales less than $100,000 would not require sales tax payments on those sales.

(03:46): Again, each state is different.

6 Basic Rules for Sales Tax Compliance

(03:48): So if you are going to take on sales taxes yourself, there are six basic rules for just sales tax compliance.

Where do you have nexus? What states might you have nexus in?
Figure out if your products are taxable, some products are not considered taxable. Some states don’t collect sales tax on essential food products or diapers or baby formula or such things that other states do.
Register for sales tax permits, not only in the state, but possibly in the counties or cities where you’re operating.
Put collection systems in place.
Determine tax rates.
Put it into your system so that you can charge and collect and then turn around and file and remit those sales taxes.

Outsourcing a Nonprofit Sales Tax Expert

(04:52): Now, if this seems a little overwhelming, which it sure can, I understand that, my recommendation would be because it’s such an administrative burden, but it’s also an important one that needs to be handled by your organization, I might recommend you outsource this.

This is a good opportunity for you to have an expert take care of these details for you and alleviate this burden from your staff so they can go on and deliver the services that make your organization great.

Expert Suggestions

(05:29): I am not endorsing any particular outsource sales tax outfit. I will give you a couple of names of some that I have some exposure to, or familiarity with:

Avalara. This is what they specialize in, is sales taxes.
Your CPA firm. They may do something like this.
Clifton Larson Allen. They do sales tax compliance and can help advise on that.
Tax Jar: another company that is very up and coming, they’ve only been around for a few years.

So those are just some ideas for you.

And that is your Monday Money Moment on nonprofit sales tax.

(06:27): Thank you. And if you would like to have more tips and more ideas, please join me on my website, www.executivefinancialinsights.com. Thank you.

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