SALT Report 1363 – The latest issue of Tax Policy News covers the taxability of employee meals and sales made to and by exempt organizations. Tax Policy News is a monthly online newsletter provided to the public to help navigate the various tax-related statutes and administrative rules in Texas.
Meals for Employees of Exempt Organizations
In Texas, there’s no tax free lunch for employees of exempt organizations. Rule 3.322(g)(5) states that, “an employee of an exempt organization cannot claim an exemption from tax when the employee purchases taxable items of a personal nature even though the employee receives an allowance or reimbursement from the organization.” And Rule 3.322(g)(6)states that, “a person who travels on official business for an exempt organization must pay sales tax on taxable purchases whether reimbursed on a per diem basis or reimbursed for actual expenses incurred.”
Therefore, employees of an exempt organization may not purchase meals tax-free with an exemption certificate, even if the employee is on official business or receives an allowance or reimbursement from the organization.
Tax-Free Sales by Qualified Exempt Organizations
Generally, nonprofit organizations must collect sales tax on their sales of taxable items and services. However, a nonprofit religious, educational, or charitable organization, or an exempt organization under IRC §501(c)(3), (4), (8), (10), or (19), that applies for and receives a sales tax exemption is allowed to hold two one-day, tax-free sales each calendar year.
During a designated tax-free fundraising event, the qualifying exempt organization may sell taxable items free of tax as long as the sales price does not exceed $5,000. But, an item donated to the organization may be sold tax-free regardless of the sales price. This means that the sale of a donated item during a designated tax-free fundraising event may be exempt even if the sales price of the donated item is greater than $5,000. Additionally, any item made by an exempt organization and sold at the organization’s tax-free sale or auction is exempt regardless of the sales price.
Exempt organizations must designate in their records prior to the sale which two one-day sales will be exempt that calendar year. This requires careful planning and coordination for organizations that operate on a fiscal year basis. For example, PTAs, PTOs and other school groups commonly plan events based on school years rather than calendar years.
Finally, there is no exemption when a qualified exempt organization raises funds by acting as a sales representative or commissioned sales agent for a for-profit retailer. For example, if the for-profit retailer, not the exempt organization, is considered the seller then the tax-free sale provision does not apply. In these situations, the exempt organization must collect sales tax on taxable sales and forward the tax collected to the for-profit retailer, who reports and remits the tax. An alternative would be for the for-profit retailer to include a statement in the catalogs and order sheets that the selling price includes Texas sales or use tax on taxable items.
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