Back to School; Back to Fundraising

Acting as a Sales Agent or Representative of a For-Profit Fundraising Company

When a school, school group, PTA/PTO, booster club or other nonprofit organization raises funds by holding a book fair or selling candy, food products, gift wrap, holiday ornaments, candles or similar items using a for-profit fundraising company’s brochures, catalogs, sales forms or marketing materials and receives a share of the proceeds (for example, “commission,” “split” or “cut”), the nonprofit organization is functioning as a sales agent or representative of the fundraising company. See Rule 3.286(d)(6).

Even though the nonprofit organization may take orders, collect money and deliver merchandise to the purchaser, the seller is the for-profit fundraising company. This type of fundraising activity does not qualify as a tax-free sale and tax must be collected on the sale of all taxable items.

If the nonprofit organization is eligible for the two one-day tax-free sales, the nonprofit organization has not used one of its tax-free sale days when using a for-profit fundraising company for this type of fundraiser. See Tax Code Section 151.310(c), Rule 3.322(h)(2) and Rule 3.286(d)(6) for information regarding the two one-day tax-free sales provision. Similarly, sales of taxable items made through the website of a fundraising company are also taxable and may not be sold tax-free in connection with a fundraiser.

When the nonprofit organization acts as a sales agent or representative of a for-profit fundraising company, the fundraising company should provide instructions and information to the nonprofit organization regarding how the for-profit fundraising company will provide for the proper collection and remittance of sales tax on any taxable items sold. Because tax laws vary among the states and the fundraising company is engaged in business in Texas, it must be knowledgeable of Texas sales tax law. The nonprofit organization engaging in the fundraising activity should have a thorough understanding of the agreement it is entering into with the fundraising company.

Collecting Local Tax

The primary location of the nonprofit organization determines the tax rate that should be collected from customers and which local taxing jurisdictions are entitled to revenue from those sales. Under this scenario, the nonprofit organization is operating a place of business on behalf of the seller.

Reporting the Tax

The nonprofit organization has no sales tax collection or remittance responsibility other than to forward to the for-profit fundraising company all of the sales tax collected on its behalf. If the nonprofit organization has a sales tax permit, these sales are not included in the nonprofit organization’s total sales. All sales tax remittance and reporting are the responsibility of the fundraising company. The fundraising company cannot accept a resale or exemption certificate from the nonprofit organization in this situation. Instead, it must ensure the proper amount of tax is collected by the nonprofit organization and then report and remit that tax.

The for-profit fundraising company may advertise in its sales catalog or state on each invoice that tax is included in the sales price of the taxable item or require that tax be calculated and collected based on the selling price of each taxable item. The fundraising company is then responsible for remitting the tax collected, including tax “backed out” of a tax included sale, to the Comptroller. The fundraising company should only require the nonprofit organization to remit the amount of tax due on or included in the sales price and collected on behalf of the fundraising company; the fundraising company should not charge the nonprofit organization sales tax.

Examples

In the following examples, the taxable item sells for $11, the sales tax rate for the location where the taxable item is sold is 8.25 percent and the nonprofit organization’s share of the proceeds is 50 percent of the sale with no additional deductions under the terms of the agreement.

Tax included catalog

Divide $11 by 1.0825. That equals the tax base of $10.16. The difference between $11 and $10.16 is the sales tax, which is $0.84. If the nonprofit organization’s share of the proceeds is 50 percent of the sales price of $10.16, the nonprofit organization’s share of the proceeds is $5.08. The for-profit fundraising company will report and remit the $0.84 sales tax collected by the nonprofit organization.

Tax not included catalog

Multiply $11 by .0825 to determine the sales tax amount of $0.91. Since the nonprofit organization’s share of the proceeds is 50 percent, multiply $11 by 50 percent. Of the $11.91 collected, the nonprofit organization’s share of the proceeds is $5.50. The for-profit fundraising company will report and remit the $0.91 sales tax collected by the nonprofit organization.

Sales for Resale

Please note that neither this article nor Rule 3.286(d)(6) addresses the taxability of sales by a for-profit fundraising company to a nonprofit organization that is purchasing inventory for resale. A fundraising company may sell taxable items tax-free to a nonprofit organization acquiring the taxable items for resale. See Tax Code Section 151.006(a) and Rule 3.285(a)(2) regarding sales for resale.

School Fundraisers and Texas Sales Tax (Pub. 94-193) (PDF, 412KB) provides additional information of interest to schools and school groups.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1208.html