Non profit organizations and fund raisers have had a significant change in the application of sales tax with the revision of Regulation 1597. This revision, effective March 7, 1994, is more than just a subtle change. According to 1597(g), non profit organizations will be considered agents of companies which furnish property to them for delivery to consumers unless certain requirements are met. This is contrary to other sales and use tax regulations which require explicit agency relationships to distinguish an agent from a retailer (see for example Regulation 1540 on Ad Agencies). This change places the burden of collecting and remitting sales tax on the supplier to the non profit as opposed to the non profit organization.
In a recent case, a fund raising organization supplied holiday gift items to a non profit organization who was selling these items to consumers to raise money. The state took the position that the sale from the supplier to the non profit organization was not a sale for resale but instead the non profit organization was merely an agent of the supplier thereby shifting the burden of taxation to the supplier. This was based on the new Regulation 1597(g) which states that in order to be considered a retailer as opposed to an agent the following four criteria must be met:
A) The non profit organization solicits the order from the public in its own name.
B) The non profit organization collects the sales price from the customer in its own name.
C) The non profit organization is responsible for and pays the supplier for the merchandise.
D) The contract between the non profit organization and the supplier clearly identifies the fact that the organization will purchase and resale the product to its customers.
Unless the above criteria are met the non profit organization will be considered the agent.
As with virtually all tax law, certain exceptions exist. Among these are food products and non alcoholic beverages sold by qualified non profit youth organizations. Regulation 1597(d) exempts these organizations from tax provided the proceeds are used solely in the furtherance of the purpose of the organization. A similar exception applies to any tangible personal property sold by non profit teachers associations and friends of the library operating within the authority of the school and/or library.
Regulation 1570 still exempts sales made by certain charitable organizations provided:
A) The organization is formed and operated for charitable purposes, and qualifies for the “welfare exemption” from property taxation provided by Section 214 of the Revenue and Taxation Code.
B) The organization is engaged in the relief of poverty and distress.
C) The organization’s sales are made principally as a matter of assistance to purchasers in distressed financial condition.
D) The property sold must have been made, prepared, assembled or manufactured by the organization.
