Seminar presentation sales tax for nonprofits


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We address Sales & Use Tax Issues faced by the non-profit sector in Wisconsin.

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Seminar presentation sales tax for nonprofits

  3. 3. Wisconsin Sales Tax Is: • Measured by gross selling price • On retail sales • In Wisconsin 3
  4. 4. Calculation of Gross Sales Price Includes: • Shipping and handling • Fuel surcharges • Installation • Training and customer support • Warranties and maintenance
  5. 5. • Retailers must have a seller’s permit • Returns must be filed whether or not there are taxable sales • Penalties are imposed for failure to file or late filings Basic Rules
  6. 6. What is Use Tax? • Complementary to sales tax • Tax on use of tangible personal property or taxable services • Imposed on buyer • Due on taxable items where sales tax is not charged • Common on purchases from out-of-state or online vendors
  7. 7. When is Use Tax Due? When items are: • Stored • Used or • Consumed in Wisconsin
  8. 8. Measure of Use Tax • Based on purchaser’s cost • Includes labor, shipping, and other charges that purchaser has paid for
  10. 10. INTRODUCTION • All organizations are required to charge WI sales tax on sales of taxable products and services • Exemptions may apply  Occasional sales  Other exemptions 10
  11. 11. WHAT IS A NONPROFIT ORGANIZATION? • Org. not organized for profit • No part of the net earnings of the org. directly benefits any private shareholder or individual • Examples: Neighborhood association Church Civic group Garden club / Social club 11
  12. 12. WHAT IS SUBJECT TO TAX? • Tangible personal property (TPP) • Specified digital goods and digital codes • Certain services Parking Lodging Admissions to amusement, athletic, entertainment, or recreational events 12
  13. 13. OCCASIONAL SALE EXEMPTION: OVERVIEW • A nonprofit org. must meet all of the following standards for its sales to qualify for the occasional sales exemption:  Standard 1: Not engaged in trade or business  Standard 2: Entertainment is not involved at an event for which charges constitute admissions  Standard 3: Org. does not and is not required to have seller’s permit 13
  14. 14. OCCASIONAL SALE EXEMPTION: STANDARD 1 • Two standards are used to determine that org. is not engaged in trade or business: 20-day test $25,000 receipts test • Both of the standards must be exceeded before a nonprofit organization is considered to be in a trade or business 14
  15. 15. OCCASIONAL SALE EXEMPTION: STANDARD 1 • 20-day test: Otherwise taxable sales occur on 20 days or less during calendar year Dollar amount disregarded Example: Tickets for an event are on sale for three months but since the event is only one day the 20-day test is not exceeded Example: Church group sells cookbooks every Sunday 15
  16. 16. OCCASIONAL SALE EXEMPTION: STANDARD 1 • $25,000 receipts test: Receipts are $25,000 or less during calendar year Number of days sales occur disregarded Example: Church group only sells $1,000 of cookbooks throughout the year 16
  17. 17. OCCASIONAL SALE EXEMPTION: STANDARD 1, CONT. • If both tests are exceeded, only sales occurring after both tests were exceeded are subject to tax Example: Church group’s sales of cookbooks exceed $25,000 on their 40th Sunday of selling. Since their sales have never been above $25,000 they do not hold a seller’s permit. Now that they have met both tests, every sale after the $25,000 is subject to tax. In subsequent years, all of the group’s sales would be subject to tax. 17
  18. 18. OCCASIONAL SALE EXEMPTION: STANDARD 2 • “Entertainment” defined Entertainment provided at an “admission” event by all persons or groups who are paid at least $500 in total per event Payment does not have to come directly from nonprofit org. i.e. Sponsor pays performer 18
  19. 19. OCCASIONAL SALE EXEMPTION: STANDARD 2, CONT. • “Admissions” defined Access to event involving entertainment is restricted to only those who pay a required fee, make a “required donation,” or who must make a purchase (i.e. meal or raffle ticket) Admissions to educational events are not taxable, even if entertainment is involved 19
  20. 20. OCCASIONAL SALE EXEMPTION: STANDARD 2, CONT. • If “entertainment” criteria is met but “admissions” criteria is not met, admissions are not taxable Example: Nonprofit holds a pig roast in a city park. The city hired a band for $600 to entertain. There is a charge for the meal but anyone can come and listen to the band for free. This is not an admission event. 20
  21. 21. OCCASIONAL SALE EXEMPTION: STANDARD 2, CONT. • Exception available if entertainment is deemed to be involved: Step 1 – Obtain seller’s permit from DOR for days of event involving entertainment Step 2 – Pay sales tax on sales of TPP or taxable services on these days Step 3 – Request inactivation of seller’s permit after event 21
  22. 22. OCCASIONAL SALE EXEMPTION: STANDARD 2, CONT. • If all three of these steps are taken, an org. may still make exempt occasional sales on days not covered by the event • NOTE: Days and receipts from events for which seller’s permit was obtained are included in determining the 20-day test and $25,000 receipts test in Standard 1 22
  23. 23. OCCASIONAL SALE EXEMPTION: STANDARD 3 • Nonprofit org. is not required to hold seller’s permit if its sales are exempt from sales and use tax (meets Standard 1 and Standard 2) 23
  24. 24. SELLER’S PERMIT INFORMATION • If a nonprofit org. does not qualify for the occasional sale exemption, it is required to obtain a seller’s permit and charge sales tax on taxable sales • “Change in activities” Org. holds seller’s permit in current year but believes “in good faith” that it will qualify for occasional sale exemption in following year Org. may request inactivation of its seller’s permit 24
  25. 25. SELLER’S PERMIT INFORMATION, CONT. • Two questions to help determine “good faith” effort: 1. What did org. do in current calendar year? 2. What does it expect to do differently in following year, and why? • If org. requests inactivation of seller’s permit but later exceeds standards, only sales occurring after standards are exceeded are subject to tax • Sales made before requesting inactivation do not qualify as exempt occasional sales, even if all other standards are met 25
  26. 26. FUNDRAISERS AND OTHER SALES BY NONPROFITS • Admissions to amusement, athletic, entertainment, or recreational events/places are taxable Entries to runs, walks, golf, and other participation events are subject to tax Example: Nonprofit organization holds a 5K run to raise money. The mandatory $50 participation fee is a taxable admission. 26
  27. 27. FUNDRAISERS AND OTHER SALES BY NONPROFITS, CONT. • Silent auctions – sales of gift certificates and other products Sales of tangible personal property at silent auctions are subject to sales tax Sales of gift certificates for a specific item can be subject to sales tax The certificate is considered the sale of the specific item Sales of gift cards are not subject to WI sales tax When the gift certificate is redeemed, the applicable sales tax will be computed by the retailer 27
  28. 28. FUNDRAISERS AND OTHER SALES BY NONPROFITS, CONT. • Sales that bear little or no relation to the value received Tax may be based on reasonable value of TPP or taxable service Burden is on the nonprofit org. to determine that the amount charged bears little/no relation to value received How does an org. do this? Determine actual value received by buyer Document and “reasonably determine” that the charge bears little/no relationship to value rec’d. 28
  29. 29. FUNDRAISERS AND OTHER SALES BY NONPROFITS, CONT. • Sales that bear little or no relation to the value received, continued Example: Nonprofit organization is holding a fundraising dinner at a restaurant. The cost to attend is $100 for a steak dinner. Persons buying the dinner only receive the steak dinner. The restaurant usually charges $40 for the steak dinner. The organization can base the sales tax on the $40 because the actual value is determinable and it can document and reasonably determine the charge ($100) bears little or no relationship to the actual value received ($40). 29
  31. 31. PURCHASES BY NONPROFIT ORGANIZATIONS • Certain nonprofit orgs. are exempt from WI sales and use tax on purchases of TPP or taxable services • Orgs. qualify if operated exclusively for: Religious purposes Charitable purposes Scientific purposes Educational purposes Prevention of cruelty to children or animals 31
  32. 32. PURCHASES BY NONPROFIT ORGANIZATIONS, CONT. • Such orgs. must apply for a Certificate of Exempt Status (CES) • CES number will be issued and must be provided to sellers when making purchases • Exceptions: Federal gov’t. units WI state and municipal gov’t. units Out-of-state orgs. 32
  33. 33. Valid Exemption Certificate Must Include (Form S-211) 1. Name and address of buyer 2. Name of seller 3. Description of property 4. Reason for exemption and CES 5. Signed by buyer 6. Dated Alternative form
  35. 35. WHAT PROPERTY QUALIFIES FOR EXEMPTION? • General Rule: All property in WI is taxable unless specifically exempt • Burden is on property owner to prove a piece of property qualifies for exemption • NOTE: WI statute section 70.11 lists about 40 categories of specific exemptions 35
  36. 36. PROPERTIES THAT QUALIFY FOR EXEMPTION • Educational • Religious • Woman’s Clubs • Fraternal Organizations (Lodges) • Low Income Housing • Non-profit Retirement Homes • 501(c)(3) Charitable Organizations 36
  37. 37. DO ORGS. EXEMPT FROM FEDERAL INCOME TAX AUTOMATICALLY QUALIFY FOR WI PROPERTY TAX EXEMPTION? • No! • Federal income tax exemption does not guarantee WI property tax exemption 37
  38. 38. CAN PROPERTY BE PARTIALLY EXEMPT? • Yes – Property used in part for exempt purposes and in part for an unrelated trade or business • Portion attributable to trade or business may be subject to tax 38
  39. 39. WHAT IF I THINK MY PROPERTY QUALIFIES FOR EXEMPTION? • File a WI DOR application form with local assessor • Form must be filed for any property that was taxed in previous year but now may qualify for exemption • Deadline is March 1 of year for which exemption is sought 39
  40. 40. WHAT IF MY ORG. PURCHASES EXEMPT PROPERTY? • If exempt property changes ownership, the new owner needs to apply for exemption 40
  41. 41. DO NEW PURCHASES OF REAL PROPERTY AUTOMATICALLY QUALIFY IF MY ORG. ALREADY OWNS EXEMPT REAL PROPERTY? • No – An org. acquiring additional real property must apply with local assessor by March 1 41
  42. 42. MY ORG DOES NOT OWN REAL ESTATE. MUST IT FILE APPLICATION FOR PERSONAL PROPERTY? • Yes – WI statute section 70.11 applies to real property and personal property 42
  43. 43. WHAT IF I MISS THE MARCH 1 FILING DEADLINE? • If the deadline is missed, no exemption can be granted for that year • If you think your property qualifies for the exemption, you must file an application by March 1 43
  44. 44. WHO MAKES THE EXEMPTION DETERMINATION? • Local assessor determines whether or not an owner’s exemption claim is valid • Case-by-case basis 44
  45. 45. WHAT IF I DISAGREE WITH THE ASSESSOR’S DETERMINATION? • Owner must follow procedure set forth in WI statute section 74.35 • Local board of review does not have any authority regarding exemption issues 45
  46. 46. QUESTIONS? Julie Bogle, JD 828-3119 Peter Soman, CPA 828-3174 46