Another topic in our ongoing series on educating the market about the impact of sales tax, and our upcoming sales tax system release.
Yes, there are many cases where there will be sales tax on races and events held by nonprofits. The good news is that donations are fully tax deductible and some states do allow exemptions for at least some nonprofit events and/or races.
The basic logic is that while nonprofits are exempt from federal and state INCOME tax, it is the participant purchasing the registration or ticket where a SALES tax is being applied. So in a number of states, race fees and ticket purchases will be subject to tax.
When we release our full sales tax system in August to comply with marketplace laws instituted by 35 states by the end of 2019, we will be automatically applying the appropriate taxes to nonprofits on a per state and per type (race, event, add-on, membership, etc.). In some states, a nonprofit can ask for exemption, and in those states we will be asking for information to verify the exemption status.
Sales Tax on Bundles
The other tricky thing to understand is bundles. If you have a high price of entry and treat part of the entry cost as a donation, the whole bundle receives the worst item taxability. For example if you have a $1,000 gala ticket but the value is only $100 and the donor can take an INCOME tax deduction for $900, the full $1,000 will be used to calculate the SALES tax in a state where nonprofit gala tickets are taxable.
The same would go for a race that charges one price for a race with no T-shirt and another price for a race with a T-Shirt. The race with the T-Shirt can get clothing taxability. They need to show the T-shirt price separately. If a race just has a free T-shirt that is not a problem.
As discussed in previous posts, we are working with multiple tax advisors, as well as receiving input from races and nonprofit customers, and collaborating with other registration and ticket and nonprofit vendors to implement a system that fairly represents the obligations our customers have with states. Sales tax is a very complex problem facing our customers and we need the help of the whole community to be able to address it properly.
We will be implementing automated sales tax calculation and payment in all marketplace states by September 1, 2019 for our customers. We will be publishing more detailed information and rules for those marketplace states so customers and other vendors can understand our implementation and help guide us if they see inconsistencies with their own state laws. For non-marketplace states, customers can choose to implement sales tax calculation and collection, however RunSignup and GiveSignup will not be making payments to non-marketplace states or giving detailed tax guidance.