It is important for nonprofits to understand when sales are taxable and when exemptions may apply. In this blog post, we will explore non-taxable sales for nonprofit organizations and shed light on specific examples and criteria for exemptions.
Non-taxable Sales:
Tickets and Admissions
Sales of taxable items or services by nonprofit organizations are typically subject to sales tax, unless a specific exemption applies. However, there are instances where admissions tickets and memberships qualify for exemptions. Let’s delve into each of these categories:
Nonprofit Admissions Tickets:
Certain nonprofit activities, such as community theater performances and museum exhibits, may qualify for an exemption from sales tax on admissions tickets. To be considered nontaxable, the organization must meet specific criteria:
- Primary Mission: The organization’s primary mission should be to provide an opportunity for state residents to participate in the creation, performance, or appreciation of the arts.
- Eligible Organizations: The organization should fall into one of the following categories:
- A 501(c)(3) organization that received at least 5% of its revenue from voluntary contributions in its most recent fiscal year or the current fiscal year.
- A municipal board that promotes cultural and arts activities.
- Part of a state college or university, including the University of Minnesota, or a private nonprofit college or university that owns the facility where the event is being held.
Examples:
If a historical society operates a historically preserved home and hosts an annual art fair, the art fair admissions would be taxable. However, museum admission charges would not be taxable if separately stated on the customer bill or invoice.
In the case of a nonprofit museum that offers birthday parties for an additional fee, charges for party services like pizza and party favors would be taxable. However, museum admission charges would not be taxable if separately stated on the customer bill or invoice.
Memberships:
Sales of memberships to qualifying nonprofit organizations that provide similar services to the YMCA, YWCA, or JCC are exempt from sales tax. To qualify for the exemption, the organization should meet specific criteria, including being an exempt organization under section 501(c)(3) of the Internal Revenue Code and supporting youth and families through various activities. The exemption covers initiation fees and periodic membership dues.
However, separate charges for access to and use of the organization’s sports and athletic facilities, such as swimming pool admissions or court fees, are taxable.
Nonprofit Agricultural Heritage Organization Tickets and Admissions Exemption:
Tickets or admissions to performances or events organized by nonprofit agricultural heritage organizations are exempt from sales tax if they meet specific requirements. These requirements include organizing the events on at least 115 acres, educating the public about rural history and farms in Minnesota, and being sponsored and conducted exclusively by volunteers, employees, and board members. The exempt sales should align with the nonprofit’s tax-exempt purpose.
Understanding which sales are nontaxable is crucial for nonprofit organizations to comply with sales tax regulations. By familiarizing themselves with the criteria for exemptions and accurately distinguishing taxable and nontaxable sales, nonprofits can ensure compliance and optimize their operations.
Consult with our tax professionals at Prudent Accountants or refer to the website of Minnesota Department of Revenue Nontaxable Sales | Minnesota Department of Revenue (state.mn.us)
