Donations and Sales Tax

I know some have thought tax issues weren’t a big deal, that the government doesn’t really care what we do, but today the Kansas Department of Revenue contacted us regarding the need to pay sales tax on a fundraiser.

The use of the words “suggested donation of $xx” triggers the need to collect sales tax. If we used “donations accepted” or “freewill donation” then it wouldn’t. She also felt we’d receive more money in donations if we didn’t suggest a limit, but described our goal including dollar amount as well as a graph of some kind (like thermometers) showing how close we were to reaching our goals.

So, the government cares. Carrie cared enough to reach out to us and let us know before we got in trouble for it, so I appreciate her efforts.

We have to pay sales tax on the Ceramics fundraiser recently held for that reason. Items in Saturday’s garage sale also require collecting sales tax - you don’t have to pay sales tax on garage sales at your home, but once you gather in a space together, then you do.

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Thank you for sharing. Lesson learned. :frowning:

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She gave us some super helpful information!

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On Mon, Nov 28, 2022, 20:09 Patrick Hutchison via MakeICT Forum <noreply@talk.makeict.org> wrote:

| pwhutchi Ceramics Area Lead
November 29 |

  • | - |

Thank you for sharing. Lesson learned. :frowning:


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What about donated items we resale do we need to collect taxes and report them on those items as well?

I’m also wondering about physical items we auction?

There haven’t been any tax payer classes in the area since June. they should teach a sales tax class for nonprofits.

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Auctions yes, if we sell things then yes. If we take donations without a suggested price, then we wouldn’t have to.

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Aside from sales tax, we need to follow IRS rules whenever we sell, give away or throw away items that were donated or purchased.

Depending on which i990 we’re using we may need to provide details on each item. We also may be required to hold onto items for a minimum length of time that if I remember correctly is six months.

There are significant problems that will occur if we aren’t following IRS rules for a 501c(3).

It’s really important to remember that just complying with Kansas sales tax regulations doesn’t relieve us of the need to also follow Federal rules for tax-exempt organizations.

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I have a concern on the ceramics sales tax. I know I, as well as others, donated additional money than the suggested amount for the ornaments I used. Sales tax is determined by the amount the item was sold for. Most of the ornaments haven’t been picked up. Do they count as a sold item if they stay in possession of MakeICT? If someone came and did art in our space, made a donation, and had no intention of coming back for the item, that certainly shouldn’t be taxed. Can the additional money I donated be sales tax free? I did not pay that much for any item. I paid a small amount for the items I used and made an additional donation.

I understand the need for sales tax with the wording, but very few people left that day with an item. There simply was not $650 worth of sales transactions so the tax should be adjusted accordingly.
Go ahead and tax for the items which are exchanged for money. Only the amount of that item. Any additional amount should not be taxed.

This seems like going out of the way to give the government free money. I would not have donated what I did if I knew part of it was going to be given away for no reason.

The garage sale is different. People will be coming in and trading money for items which they can then carry out the door. Sales tax away. Of course for the agreed upon amount of the item. Any additional should be considered a sales tax free donation.

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My understanding, given that I’m not an accountant, a lawyer, or an expert on all the ins and outs of Kansas sales tax is that the proper procedure would have been to give receipts differentiating between items “sold” and therefore taxable and contributions that aren’t taxed.

Another 501c(3) that I’m very involved with does exactly that using commercial software running as a cash register in which we’ve configured donations as if they are gratuities (tips). A given transaction can contain both a purchase and a donation. In our QuickBooks we get totals of sales taxes owed each month and sales taxes collected and over the long run they are in balance. (They still get separately itemized in our treasurer reports because we do our accounting on a strictly cash accrual basis).

A transaction recorded with a “selling price” where there’s no goods or service wanted or provided shouldn’t be considered a “sale”, but should be booked as a donation (with no sales tax collected or due).

I don’t know if it might be practical retrospectively to refigure the $650, or whether attempting to do so might be interpreted as tax evasion. It’s probably best to pay up and consider the less than $50 of sales taxes as a relatively inexpensive object lesson.

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One other thing is that not offering a receipt when sales taxes are collected might violate a separate statute under Kansas law. That used to be true, but I’d check with an expert about whether it still is true.

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Yes I agree. $50 for a learning experience is cheap. I wish all my lessons in life were that cheap.

I just wanted to make a point about the legality of the sales tax. I dislike the thought of giving the government five cents extra.
I could be wrong too. It happens allll the time.

Thank you for reading and responding to my concern.

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I donated just to donate and show my support for the project and the people who took the time and effort to make it possible. This is how I feel about it. Lesson learned- Now we know exactly what we CAN do and what we CAN’T do. This eliminates all the second guess work on the issue. We made over our goal amount so big deal on the $50 in sales tax.I’m happy to give up the sales tax amount because we gained so much from the experience. See guys, that didn’t hurt so much after all. We all learned from this and hopefully other’s can get ideas to raise funds for their department projects and other endeavors in the future.

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Also along this line raffles, the state does pay attention to what individuals and nonprofits are doing and they will contact you when you violate the law.
https://www.bizjournals.com/wichita/inno/stories/news/2022/11/22/nxtus-cancels-its-bourbon-raffle.html

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That’s it!!! It wasn’t the IRS I had talked to but the Kansas Bureau of Revenue when I wanted to find out about a Drawing/Raffle we did 10 years ago. I had been told I could NOT call it a “raffle” I had to call it a “drawing”. A Drawing is a free drawing where you can post a sign that says donations welcome but no money is required for the drawing ticket. A “Raffle” is where you ask for money in exchange for a ticket. There IS a difference. It’s all in the wording. Just like the Ceramics Fund Raiser, if the word SUGGESTED hadn’t of been used we would not have had to pay taxes. Same with raffle and drawing. I “JUST” got off the phone with Gavin from the Bureau of Revenue sales tax and State Gambling and he said I was correct. It is legal to hold a drawing but you can NOT ask for money to receive a ticket and it MUST be posted no money/purchase necessary for ticket. Donations Welcome.He said a Raffle is where you are asked to pay in advance for a chance to win and that is illegal unless you’re a non profit. Here is the number just in case anyone else wants to ask them the Legal differences between a Drawing and Raffle *785-368-8222 Ohhh, if you collect over a certain amount from a drawing you do have to report it for tax purposes. I think he said $25,000

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*Goals

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With a drawing, you use your free will to donate to the “CAUSE” if you want, but you are NOT required to donate in order to have a chance at a Prize. A Raffle is asking for money in advance to take a chance/gamble on winning a prize, no free will is involved, you have to pay to play, THAT is the difference.

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Over 25,000 requires a state permit as well. I’m to tired to look up the information at the moment

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I don’t think anybody wants to give money away to the state that isn’t owed. But if they think you owe them money, they are going to try to collect it. And if it affects our non-profit status, is it worth that? If you are so against playing the game that you would rather not donate to makeict, or any organization, then it doesn’t seem like you really want to help that bad. If you give somebody $100 and they have to pay $7 in taxes, they still have $93 that they otherwise would not have had, right?

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Because if I donate 100$ and don’t want give away 7$ for no reason then I don’t really want to help? That doesn’t make any sense. There is nothing at MakeICT that I want to buy for $100, but I’ve gladly donated much more than that. Rules are rules. They are meant to follow. That includes what you don’t have to pay. Sales tax isn’t a game. It’s very simple, clearly defined rules.
If I bought something for $100 that included sales tax, I would pay $107.5 and the seller would still keep $100.

I’m glad we can learn from this, but saying I don’t really want to “really” donate just doesn’t make any sense and is unnecessarily insulting.

I did donate and was told after the fact that is was a sale instead of a donation.

Should we go into the legality of changing a person’s donation into a taxable purchase after the fact? What if I had already listed it as a write off on my taxes? What do you think would put the non profit status at more of a risk? $25 in self reported sales tax or people complaining to the DoR that their donations were changed to sales after the fact? It sounds dramatic, but at that point I would be looked at for tax fraud.
Trying to deduct something as a donation when it wasnt? Oh boy!
This is all far fetched of course and highly unlikely to happen, but entirely possible.

In this instance, it more than likely, would be considered tax fraud on your income taxes because you did not receive a receipt for cash nor did it get documented by the nonprofit as an individual donation. [quote=“samspeer, post:18, topic:19094”]
What do you think would put the non profit status at more of a risk? $25 in self reported sales tax or people complaining to the DoR that their donations were changed to sales after the fact? It sounds dramatic, but at that point I would be looked at for tax fraud.
[/quote]

We have had an instance where someone reported to the IRS giving a large physical item to the space that MakeICT has no record of. The person got audited and the IRS asked us for that record which we could not produce.

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Yes it would be tax fraud. And if I donated money to a non profit, they later changed the status to a sale, I was audited and accused of tax fraud because of that, and/or a lack of receipt; I can assure you the fall out would be far significant to being audited for sales tax and having to pay an additional $25.
Even if the claims ended unsettled, questions would still need answered, investigations had, lawyers to be paid, etc…
Again, this is all very unlikely. I personally would never do anything to harm MakeICT and I certainly don’t mean to offend anyone.

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From: noreply=talk.makeict.org@mg.makeict.org noreply=talk.makeict.org@mg.makeict.org on behalf of Malissa Long via MakeICT Forum noreply@talk.makeict.org
Sent: Saturday, December 3, 2022 8:56:50 AM
To: samspeerks@gmail.com samspeerks@gmail.com
Subject: [MakeICT] Donations and Sales Tax

Malissa
December 3

In this instance, it more than likely, would be considered tax fraud on your income taxes because you did not receive a receipt for cash nor did it get documented by the nonprofit as an individual donation. [quote=“samspeer, post:18, topic:19094”]
What do you think would put the non profit status at more of a risk? $25 in self reported sales tax or people complaining to the DoR that their donations were changed to sales after the fact? It sounds dramatic, but at that point I would be looked at for tax fraud.
[/quote]

We have had an instance where someone reported to the IRS giving a large physical item to the space that MakeICT has no record of. The person got audited and the IRS asked us for that record which we could not produce.

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