Welcome to part two of my discussion regarding Illinois state sales tax requirements for nonprofit or exempt organizations. Last month I discussed the Illinois state sales tax exemption with respect to purchases you make. If you missed part one, you can find it on my website, NancyGonsiorek.com, under the newsletter tab. Today, I will finish with the second component of sales tax: collection and remittance.
To refresh your memory, the Illinois Department of Revenue is our state reporting agency for state sales tax and the authority that determines the applicable exemption. The general rule is the state of Illinois requires vendors, including nonprofits, to collect and remit Retailers’ Occupation (i.e., Sales) Tax on sales of merchandise, food, and other personal property. Plain and simple, if you have ongoing sales to the general public, you must charge state sales tax on that sale and remit taxes collected to the IDOR through the filing of monthly sales tax returns.
However, for some nonprofit activities the IDOR provides three general exceptions:
Exemption 1 – Sales to Members: Sales by an organization to its members are not taxable. Examples would be baseball uniforms sold by the club to the program participants, or the selling of choir robes sold by the church to the choir members. Generally, this exception does not extend to the ongoing sales of “spirit wear,” concession stand sales or school supplies.
Exemption 2 – Noncompetitive sales (fundraising): Occasional, noncompetitive sales are specifically exempt from collecting sales tax. Criteria for qualifying as a noncompetitive sale are as follows:
• The organization must be exclusively charitable, religious, or educational.
• Sales must be conducted by members of the entity (i.e. volunteers).
• All proceeds go to charity.
• Transaction is not continuing, it is held annually.
• The primary motive for selling/purchasing the item is a charitable contribution.
This is your occasional fundraiser, whereby the organization volunteers sell items to the general public as a fundraiser: Pizzas, cookie dough, or that lovely wrapping paper and candy. One would certainly think twice before paying that exorbitant purchase price if not for (1) the adorable little children soliciting product, and (2) the primary purpose of the sale is to raise money for a worthy cause.
Exemption 3 – Special events: The state of Illinois provides a sales tax exemption to charitable organizations for “special events,” of which you are allowed two per year. Special events would include occasional galas, dinners, silent auctions, fun fairs and rummage sales. Yes, you heard me correctly, you may hold just two such events each year without having to collect and remit state sales tax as applicable.
In addition to the three exemptions listed above, sales related to teacher-sponsored student programs (i.e., the German Club selling Gummy Bears, or students participating in an economics fair) are exempt from collection and remitting sales tax under another section of state law.
How do nonprofit leaders navigate state sales tax requirements when fundraising and operating programs? When collecting revenue in exchange for merchandise, food, or other personal property, determine if the sale fits into one of the above exceptions. If your sale doesn’t qualify for the exemption, determine whether you are purchasing the subject merchandise from a vendor who will collect and remit the associated sales tax on your behalf. This is sometimes the case with spirit wear sales by school PTOs and special events held at a country club or other venue.
Discuss with your accountant any activities for which you are uncertain, before commencement of that activity. And lastly, the Illinois Department of Revenue website provides assistance, including forms, instructions and contact information.
• Nancy Gonsiorek is a Certified Public Accountant providing audit, tax and consulting services to nonprofit organizations. Her firm, Nancy L. Gonsiorek, CPA, LLC is based in Crystal Lake. She can be reached at 815-455-9462 or via email at NancyGonsiorek@comcast.net.