Sales and Use Taxes: Is Your Church in Compliance?
Did you know that only about half of states within the USA allow churches a sales and use tax exemption?
A sales tax generally is due when a seller sells something and is payable to the state or other jurisdictions allowed to tax sales. A use tax generally is due when a buyer purchases something on the internet and/or out of state and is generally payable to the state in which you operate.
If your state does not allow churches a sales and use tax exemption, then you must pay taxes on what you sell and also pay taxes on out of state purchases (often made through internet). Here are a few noteworthy examples:
• California does NOT generally exempt churches from sales and use tax and neither does Arizona.
• Nevada and Indiana DO offer certain exemptions to churches.
Churches who operate in states that do NOT exempt churches from sales and use tax are often confused about this. The two most common misconceptions are:
• We don’t need to pay sales tax when we sell items such as books or DVDs at our church.
• We don’t need to pay a use tax in our state when we purchase items out of state.
Let’s address both of these misconceptions. In those states where no exemption is available, the church does need to pay sales tax when it sells merchandise. Food may or may not be exempt and must be checked on a case by case basis in your state. If the church paid sales tax to purchase the items, usually the tax paid can be a credit against the sales tax due, or a church can get a reseller’s license and avoid paying tax on items that will be resold. It should also be noted that when a church asks for a donation for any size of donation including no donation (rather than “selling” an item), then it may be non-taxable.
If churches in your state are not exempt from use tax, you must pay use taxes on your out of state purchases (often these are internet purchases). This means tracking your out of state purchases and the sales tax you did pay on those throughout the year. If you paid out-of-state taxes, those are generally creditable against your state’s usage tax.
Your state will have a publication to assist you with the proper procedures. For instance, in California, see the Board of Equalization’s Publication 18. Try typing “sales and use tax exemptions church” into Google search with your state’s name to find the relevant publication(s). Not knowing will not excuse a church, and fines/penalties may apply if sales and use taxes are not paid timely.
If you are in a state offering exemptions to sales and use tax, be sure to file all the necessary forms to qualify; these can generally be found online and/or referenced in a publication of your state’s taxation entity. Be sure to keep these documents on file at your church.
We know these types of tax questions can be complex and confusing. That’s why our team is here to help! If you have questions on making sure your church is compliant, contact us today!