Sales Tax Issues Impacting Not-for- Profit Organizations June 8, 2012 1:00-2:15 p.m. Content Leaders: Emily Cummins, CPA, CPCU, ARM, ARe, director, tax & risk management, National Rifle Association of America Jeffrey Saltzberg, JD, director, state and local tax services, McGladrey & Pullen, LLP All contents copyright 2012, ASAE: The Center for Association Leadership, except noted selections which have been reprinted with permission of the copyright owner.
05/23/12 Sales Tax Issues & Nonprofit Organizations Jeffrey Saltzberg Director, State and Local Tax Services McGladrey LLP Emily Cummins Director, Tax and Risk Management National Rifle Association of America ASAE 2012 Finance, HR & Business Operations Conference Washington, DC June 7-8, 2012 ASAE Learning Lab Lesson Plan Case study introduction: NRA Knowledge content: McGladrey Case study successful outcomes: NRA Nonprofit Sales Tax Case Study Introduction National Rifle Association of America is a 501(c)(4) membership association with several 501(c)(3) charitable affiliates. NRA s project goals included: Update contingency analysis. Conduct nexus study (state sales tax footprint). Enhance member communication. Always protect the brand. Tax Risks View From the Top COSO.org ASC 450 (formerly known as FAS 5) ASAE Learning Lab Takeaway: Sample Questions Explored in Internal Nexus Study How is our e-retail currently designed and fulfilled? Establishes standards of financial accounting and reporting for loss contingencies. Requires accrual by a charge to income (and disclosure) for estimated loss from a loss contingency if: (a) it is probable an asset had been impaired or a liability incurred at the date of the financial statements, and (b) the amount of loss can be reasonably estimated. ASC.FASB.org How are we currently distinguishing between sales tax and use tax obligations? Where have we already admitted nexus, and why? How are we projecting to expand operational activities in the next one, three, to five years? What is our past success rate in tax controversy resolution? How are peer institutions handling comparable issues and lessons pre- and post-amazon? 1
05/23/12 Sales Tax Collection Responsibility Exceptions to General Rule In most states, nonprofit organizations which make taxable sales of tangible personal property and select services are required to register to collect and remit sales tax on such sales. Examples of taxable sales of tangible personal property Books Reference guides Compact discs Tee shirts Cups Some states exempt certain nonprofits from collecting sales tax on all or specified types of taxable sales. Examples: AZ sales of tangible personal property by 501(c)(3) charities are exempt from sales tax. SC sales by religious and charitable organizations are exempt from sales tax if the organization is exempt from property taxes, the net proceeds are used for exempt purposes, and no benefit inures to any individual. TX Periodicals and writings published or distributed by nonprofit religious, philanthropic, charitable, historical, scientific, and similar organizations, excluding educational organizations, are exempt from sales and use tax. Types of Taxable Sales Typically Made by Nonprofits Online sales Auction sales Gift shop/school store sales Sales at conferences/ educational workshops In Which States Is a Nonprofit Required to Collect Sales Tax? This depends on whether the nonprofit has sales tax nexus in a state. If the nonprofit does not have nexus in a state, it is not required to collect that state s sales tax even if it sells taxable items in the state and has them shipped into state by common carrier. Nexus requires a physical presence that is beyond de minimis ( substantial nexus ). Presence does not need to be permanent. Examples of How a Nonprofit May Trigger Sales Tax Nexus Nonprofit Activities That Typically Do Not Create Sales Tax Nexus Clear Telecommuting employee Inventory or other property located in the state Depends on Frequency Visits by employees or independent contractors to solicit, train, or support Possible Activities of volunteers Attendance at trade shows in state if exceed certain number of days Use of in state telemarketing employees Incorporation in state In state telephone number/ answering service Holding board meetings Meeting with a seller of goods or services Attendance at seminars offered by unrelated third parties Visiting an in state financial institution for the purpose of obtaining financing 2
05/23/12 Nexus Issues That May Keep You Awake at Night Substantial exposure (tax, interest + penalty) if no sales taxes collected in certain states where nexus may already have been created No statute of limitations related to liabilities because sales tax returns have not been filed (statute hasn t started running yet) Difficult to impossible to go back to customers to collect tax (organization has to eat it ) May need accrual for liability under ASC 450 / FAS 5, Accounting for Contingencies, because liability is probable (do not take audit detection risk into consideration) and reasonably estimable OOPS I Might Have Nexus in a State Where I Have Not Been Collecting Tax What Do I Do? Request voluntary disclosures Typically requested anonymously by public accounting firm Advantages of voluntary disclosure: Limit lookback period for paying uncollected sales tax and interest, typically three or four years. All penalties are waived. Register to collect and remit sales tax on continuing basis. This is important because sales tax is an avoidable tax if you collect it. Auction Sales! Auction Sales Sales tax typically must be collected on taxable sales made at charitable auctions unless a specific exemption applies. Some states have an applicable occasional or casual and isolated sale exemption if the nonprofit is not required to be registered for sales tax and engages in making sales in the state during a limited number of days in a calendar year. The base used for the calculation of sales tax at auction sales may differ. Some states require collection of sales tax on the full auction price while others may require tax only up to the lot s fair market value (amount in excess of FMV deemed a nontaxable contribution). Conferences/Special Events Sales Tax Collection and Payment at Conferences/Special Events Typically, nonprofits are required to register to collect and remit sales tax on taxable sales at conferences based on the location of the conference. If the nonprofit makes taxable sales throughout the year in the conference state, and has nexus in the conference state (other than at conference), should request a sales tax license from Department of Taxation in the conference state. If no nexus, can typically request a temporary sales tax license. 3
05/23/12 ASAE Learning Lab Takeaway: Reviewing Sales Tax Issues at Your Nonprofit 1. 45 states and the District of Columbia impose sales taxes. Conduct an enterprise-wide risk assessment to determine if you have created sales tax nexus in any states where you are not already registered for sales tax. Partner with your tax professionals for expertise. 2. Review all activities and web domains to determine if you are selling taxable tangible personal property or select services. 3. If you have prior year sales tax collection responsibilities, evaluate using an outside firm to process voluntary disclosures. Gain the significant advantages of limited lookback periods, waivers of penalties, and registration on going forward basis. ASAE Learning Lab Takeaway: Reviewing Sales Tax Issues at Your Nonprofit 4. If you are planning a charitable auction a. Check to see if auction sales qualify for occasional or casual and isolated sales exemption in the state where auction is being held. b. If the exemption is not applicable and your nonprofit is not registered for sales tax in the state where the auction is being held, request a temporary sales tax license prior to the auction. c. Determine if sales tax should be collected on full auction price or only fair market value (typically minimum bid price). d. Communicate clearly to auction event attendees. ASAE Learning Lab Takeaway: Reviewing Sales Tax Issues at Your Nonprofit 5. Prior to making sales of tangible personal property at an out-of-state conference, check if your nonprofit should register with the conference state s Department of Taxation to collect sales tax. If so, register for sales tax, collect, and remit the tax. In certain states, such as Colorado, sales tax registration with the locality might also be necessary. 6. Review how you distinguish between sales tax and use tax obligations. Consider a contingency analysis per ASC 450 (formerly FAS 5). Partner with your tax pros for expertise. 7. Expect to update tax positions for post-amazon regimes. Nonprofit sales tax case study conclusion National Rifle Association s outcomes: Completion of state sales tax footprint. Ongoing refinement of liability account calculations and accruals. Expansion of live and online support for member understanding. National Rifle Association provides leadership in transparency and accountability of tax positions. Example: Disclosure on NRAstore.com For merchandise purchases, sales tax will be charged based on the NRA's legal obligation in the state to which the materials will be mailed. NRA currently charges sales taxes on merchandise sales into 44 states plus District of Columbia. Sales tax charges on your order will be assessed based on the state where you reside unless you furnish NRA with an exemption certificate. Actual sales tax rates are based on state statutes as well as NRA agreements with state tax departments. Click here for the current sales tax information. Example: Disclosure on NRAfoundation.org Recipient is responsible for any applicable sales tax, delivery or FFL cost. Example: Disclosure on NRAILA.org NRA pays use tax on fulfillment items. Presenter Contact Information Jeffrey Saltzberg Director, State and Local Tax Services McGladrey LLP 301-296-3673 jeff.saltzberg@mcgladrey.com Emily Cummins Director, Tax and Risk Management National Rifle Association of America ecummins@nrahq.org 4
National Rifle Association provides sector leadership in transparency and accountability of tax positions. Example: Disclosure on NRAstore.com For merchandise purchases, sales tax will be charged based on the NRA's legal obligation in the state to which the materials will be mailed. NRA currently charges sales taxes on merchandise sales into 44 states plus District of Columbia. Sales tax charges on your order will be assessed based on the state where you reside unless you furnish NRA with an exemption certificate. Actual sales tax rates are based on state statutes as well as NRA agreements with state tax departments. Click here for the current sales tax information. Example: Disclosure on NRAfoundation.org Recipient is responsible for any applicable sales tax, delivery or FFL cost. Example: Disclosure on NRAILA.org NRA pays use tax on fulfillment items.