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Sales Tax Guidelines for Local Church Fundraising
January 21, 2015
The State of Michigan has the following Special Rules for Nonprofit Organizations like churches below (quote):
P. A. 156 of 1994 (effective January 1, 1994) exempts from sales tax at retail made by certain organizations (nonprofits) if aggregate sales are less than $5,000. If total sales are more than $5,000 in a calendar year, sales tax is due on all sales, including the first $5,000.
CAUTION: Any sales tax collected by a nonprofit organization must be remitted to the State of Michigan even if aggregate retail sales for the calendar year are less than $5,000.
Following is a Q & A that may cover many of the situations in the church:
Q1. Is the $5 admission to our monthly senior luncheons taxable?
A1. If the food is prepared by members of the church, sales are taxable. If the food is prepared by a caterer and sales tax was paid, no tax is due.
Q2. Are “free will offerings” collected during a Lenten dinner taxable?
A2. No. Free will offerings are voluntary and not commercial transactions contemplated under this rubric. (The donor’s claim for charitable donation however would be reduced by the value of the dinner.)
Q3. Are tickets sold to individuals for the “Pigs n Blankets” fund raiser dinner taxable?
A3. Yes, taxable. (see A1 above)
Q4. Are the tables “sold” to businesses in a fundraising event taxable?
A4. No. These receipts of money should be considered a donation. To be a sale, there must be an exchange of tangible good for money.
Q5. What if we offer a dessert during the fundraising event stated in Q4, would there be sales tax on the fair market value of the dessert?
A5. No tax is due. The dessert is just a minimal item at the fundraising event as an expression of the church’ hospitality.
Q6. The proceeds from rummage sales taxable?
A6. Yes. But all the items may not be taxable. Take note of the General Guidelines (page 2 of the attachment).
Q7. Do proceeds from the UMW sales count towards the $5,000 for the whole church?
A7. You will notice that the Sales Report Form require entry of the Federal ID number. The UMW has its own FIN, hence its sales are separate from the church.
Q8. Should the church obtain a Sales Tax License, are we also supposed to "keep books to show separately the transactions used in determining the tax levied by this act."?
A8. The State Tax Enforcement folks don’t live in a bubble and their practice is not to require churches to obtain a Sales Tax License. Having a Sales Tax License can create a real administrative burden to the church. The Sales Tax License imposes certain reporting obligations, such as periodic reporting of sales even below $5,000 and tracking of these sales would be a nightmare.
Q9. So, if the church does not have a Sales Tax License, how would it report sales of $5,000 or more?
A9. The recommended form for the church is the Sales Tax Return for Special Events form (see attachment). You will notice that the last line on the second paragraph (above the form), says:
“If the group does not have a sales tax license, use this form to report and pay the sales tax due from an event.” You will also notice on the form that the related box says “Sales Tax License Number (if applicable)”. Write “None” on this box. Lansing office of Tax Enforcement said unless the church sells alcohol, it does not need a Sales Tax License. (I don’t expect any of our churches to sell alcohol, so this won’t be an issue.)
Final comment: Taxation is usually fraught with gaps and loopholes. One thought, the church is special and the even the IRS is not sure how to deal with it in many cases. Exercise good faith, don’t be anxious about this thing and raise a big stink of it because the government probably won’t.
Should you have further questions or comments, please contact me.
Blessings,
Pros
Pros Tumonong
Conference Treasurer
Ph: 1- 888.217.1905 X 1241
Email:
Attachment: Sales Tax Return for Special Events Form