Seminar presentation   sales tax for nonprofits
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Seminar presentation sales tax for nonprofits

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

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

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    Seminar presentation   sales tax for nonprofits Seminar presentation sales tax for nonprofits Presentation Transcript

    • SALES AND USE TAX FOR NONPROFIT ORGANIZATIONS AND WISCONSIN PROPERTY TAX EXEMPTIONS May 22, 2014 1
    • PART ONE SALES TAX BASICS 2
    • Wisconsin Sales Tax Is: • Measured by gross selling price • On retail sales • In Wisconsin 3
    • Calculation of Gross Sales Price Includes: • Shipping and handling • Fuel surcharges • Installation • Training and customer support • Warranties and maintenance
    • • 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
    • 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
    • When is Use Tax Due? When items are: • Stored • Used or • Consumed in Wisconsin
    • Measure of Use Tax • Based on purchaser’s cost • Includes labor, shipping, and other charges that purchaser has paid for
    • PART TWO SALES TAX ON WHAT YOU SELL 9
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • PART THREE SALES TAX ON WHAT YOU BUY 30
    • 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
    • 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
    • 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
    • PART FOUR WISCONSIN PROPERTY TAX EXEMPTIONS 34
    • 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
    • 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
    • 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
    • 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
    • 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
    • WHAT IF MY ORG. PURCHASES EXEMPT PROPERTY? • If exempt property changes ownership, the new owner needs to apply for exemption 40
    • 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
    • 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
    • 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
    • WHO MAKES THE EXEMPTION DETERMINATION? • Local assessor determines whether or not an owner’s exemption claim is valid • Case-by-case basis 44
    • 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
    • QUESTIONS? Julie Bogle, JD julie.bogle@sgcpa.com 828-3119 Peter Soman, CPA peter.soman@sgcpa.com 828-3174 46