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SALES AND USE TAX

FOR NONPROFIT ORGANIZATIONS

AND

WISCONSIN PROPERTY TAX EXEMPTIONS

May 22, 2014

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PART ONE

SALES TAX BASICS

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Wisconsin Sales Tax Is:

• Measured by gross selling price• On retail sales• In Wisconsin

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

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PART TWO

SALES TAX ON

WHAT YOU SELL

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INTRODUCTION

• All organizations are required to charge WI sales tax on sales of taxable products and services

• Exemptions may apply Occasional sales Other exemptions

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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 associationChurchCivic groupGarden club / Social club

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WHAT IS SUBJECT TO TAX?

• Tangible personal property (TPP)• Specified digital goods and digital codes• Certain services

ParkingLodgingAdmissions to amusement, athletic,

entertainment, or recreational events

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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

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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

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OCCASIONAL SALE EXEMPTION: STANDARD 1

• 20-day test:Otherwise taxable sales occur on 20 days or

less during calendar yearDollar 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

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OCCASIONAL SALE EXEMPTION: STANDARD 1

• $25,000 receipts test:Receipts are $25,000 or less during calendar

yearNumber of days sales occur disregarded

Example: Church group only sells $1,000 of cookbooks throughout the year

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OCCASIONAL SALE EXEMPTION: STANDARD 1, CONT.

• If both tests are exceeded, only sales occurring after both tests were exceeded are subject to taxExample: 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.

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OCCASIONAL SALE EXEMPTION: STANDARD 2

• “Entertainment” definedEntertainment 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

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OCCASIONAL SALE EXEMPTION: STANDARD 2, CONT.

• “Admissions” definedAccess 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

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OCCASIONAL SALE EXEMPTION: STANDARD 2, CONT.

• If “entertainment” criteria is met but “admissions” criteria is not met, admissions are not taxableExample: 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.

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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 entertainmentStep 2 – Pay sales tax on sales of TPP or

taxable services on these daysStep 3 – Request inactivation of seller’s

permit after event

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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

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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)

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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 yearOrg. may request inactivation of its seller’s permit

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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

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FUNDRAISERS AND OTHER SALES BY NONPROFITS

• Admissions to amusement, athletic, entertainment, or recreational events/places are taxableEntries to runs, walks, golf, and other

participation events are subject to taxExample: Nonprofit organization holds a

5K run to raise money. The mandatory $50 participation fee is a taxable admission.

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FUNDRAISERS AND OTHER SALES BY NONPROFITS, CONT.

• Silent auctions – sales of gift certificates and other productsSales of tangible personal property at silent auctions

are subject to sales taxSales of gift certificates for a specific item can be

subject to sales taxThe certificate is considered the sale of the specific item

Sales of gift cards are not subject to WI sales taxWhen the gift certificate is redeemed, the applicable

sales tax will be computed by

the retailer

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FUNDRAISERS AND OTHER SALES BY NONPROFITS, CONT.

• Sales that bear little or no relation to the value receivedTax may be based on reasonable value of TPP or

taxable serviceBurden 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 buyerDocument and “reasonably determine” that the

charge bears little/no relationship to value rec’d.

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FUNDRAISERS AND OTHER SALES BY NONPROFITS, CONT.

• Sales that bear little or no relation to the value received, continuedExample: 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).

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PART THREE

SALES TAX ON

WHAT YOU BUY

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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 purposesCharitable purposesScientific purposesEducational purposesPrevention of cruelty to children or animals

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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. unitsWI state and municipal gov’t. unitsOut-of-state orgs.

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

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PART FOUR

WISCONSIN PROPERTY TAX EXEMPTIONS

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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

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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

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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

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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

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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

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WHAT IF MY ORG. PURCHASES EXEMPT PROPERTY?

• If exempt property changes ownership, the new owner needs to apply for exemption

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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

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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

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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

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WHO MAKES THE EXEMPTION DETERMINATION?

• Local assessor determines whether or not an owner’s exemption claim is valid

• Case-by-case basis

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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

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QUESTIONS?

Julie Bogle, JD

julie.bogle@sgcpa.com

828-3119

Peter Soman, CPA

peter.soman@sgcpa.com

828-3174