On Nonprofits ©
June 2005

Yes Virginia, There Is a Sales Tax Liability

Q: How brave are you? Can you help us nonprofits understand our responsibility for paying sales tax on auction items sold at our fundraisers? We recently had a corporate partner for our gala. However, to receive the promised donation it mandated we pay sales tax on all auction items sold at the event because, they said, the State requires this. I question if many charities know this, let alone comply. Want to take this on?

A: I’m fearless – as long as people remember I’m just the messenger and don’t shoot!

According to my contact at the Florida Department of Revenue there is nothing in writing specifying that nonprofit organizations have to pay or not pay sales tax on such items. However, he hastened to add that the law does state that any organization in the State of Florida – exempting churches and the federal government – has to pay sales tax on the sale of tangible property.

I dug further. I figured that even if the rules leaned in the direction of having nonprofits pay sales tax surely they’d be exempt because auctions are isolated sales events – the ruling under which individuals can hold a limited number of garage sales a year without collecting and paying sales tax. What I found was not good news. If, as many organizations do, you use a professional auctioneer the isolated sales exemption does not apply. In fact, this is also the case if you use any agent, broker or other licensed dealer required by law to collect and remit tax.

I hear some of you saying you do only silent auctions. You don’t need an auctioneer – professional or otherwise. The news gets worse. The isolated sales exemption doesn’t apply if sales tax has never been paid on the items in question. Since most auction items are donated by wholesale or retail concerns that purchase their goods without paying sales tax, expecting to collect and remit the sales tax once the end user purchases them, the final seller – your organization – has to be responsible for seeing that the State gets its share.

Your organization might be able to get around this if it only auctions off non-taxable services or if it can demonstrate that the items being sold directly further the mission of the organization in some way. For example, an organization training the unemployed to manufacture jewelry could say it was providing additional experience for its clients by auctioning off their finished products. As always, I recommend speaking with your accountant.

Reporting sales tax is simple enough. It can be done online. Go to www.myflorida.com/dor and click on e-Services. If you do not have Internet access, you can fax your form request to the DOR Distribution Center at 850-922-2208 or call 850-488-8422.