Industry Topics for Nonprofit Organizations

Sales and Use Taxes in General

In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt or touched.

Use tax is a companion to California's sales tax, and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. To pay use tax, report the purchase price of the taxable items under “Purchases Subject to Use Tax” on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For nonprofit organizations tax generally applies regardless of whether the items you sell or purchase are new, used, donated, or homemade.

Activities considered sales:

Sales of food, meals, beverages, and similar items under a number of different circumstances.
Sales of tickets that buyers will exchange for food, beverages, or other physical products.
Sales of booklets, books, pamphlets and similar items.
Sales of tickets for fundraising events when the ticket price includes amounts for food or beverages.
Sales of items at rummage sales, bazaars, carnival booths, community events, and other fundraisers.
Sales of merchandise in Internet, live, and silent auctions.
Sales of tickets for game booths where prizes are guaranteed to each ticket purchaser, even when the prizes have little value. Examples include white elephant, fish pond, grab bag, and “pitch-'til-you-win” games.

Activities not considered sales:

The gifting of merchandise for a true donation: an amount someone gives your organization without expecting to receive merchandise of equal value in return.
Sales of tickets for concerts, movies, plays, shows, and similar events when food and meals are not included in the ticket price.
Sales of tickets for game booths and raffles when prizes are not guaranteed to every ticket purchaser.
The sale of travel, home rentals, guide services, personal services, tutoring, and other things of value that are not physical products.
Sales of gift cards, gift certificates, and coupon books.
Membership drives and other fundraising activities that do not involve the exchange of merchandise or that include merchandise premiums of a much lower value than the donation or membership amount.
Sales of advertising that does not involve exchanges of merchandise.

Is Your Organization Exempt From Sales Tax?

If you believe your sales or purchases are exempt from sales and use tax, you can write to us to review your eligibility.

Sales or use tax does not apply to your sales if you meet all of the following qualifications:

You are formed and operated for charitable purposes.
You qualify for the “welfare exemption” from property tax at the location where you sell merchandise.
You sell or donate items principally to assist recipients in distressed financial conditions.
You make, prepare, assemble, or manufacture the items you sell or donate.

If you qualify for special exemptions, we will send you a verification letter and let you know what to provide to your suppliers as evidence of your status.

Send your requests to:

Compliance and Technology Section, MIC: 40
California Department of Tax and Fee Administration
PO Box 942879
Sacramento, CA 94279-0040

You must provide:

Your type of organization.
A letter describing your practices and activities.
Letters from Franchise Tax Board and the Internal Revenue Service verifying your tax-exempt status.
A copy of your articles of incorporation and/or bylaws.
Welfare exemption verification (if applicable).

Obtaining a Seller's Permit

You generally need a seller's permit anytime you make sales of merchandise in California, even if all your sales are nontaxable.

If your group holds less than three fundraising events with taxable sales each year, you may apply for temporary seller's permits for each event.

If you conduct three or more fundraising sales each year, or if your taxable sales activities occur continuously, you should apply for a regular seller's permit.

Even when you are eligible for a temporary permit, you may find it easier to hold a regular permit. This keeps you from forgetting to apply for the temporary before each event and ensures that we automatically send your tax returns.

If you have held an event without applying for a permit, you should contact us immediately. Prompt action could allow you to apply, file, and pay before penalties and interest are due.

You can apply for a permit easily using our online registration, in person at any of our field offices, or through the mail. Registering for the permit is free, although in some cases a security deposit may be required.

Collecting and Paying Tax

It is your responsibility to apply for the permit, reports your sales, file returns, and pay the tax due.

Taxable Sales

Generally, the amount you receive in exchange for merchandise is taxable. This is true whether you receive cash, barter, trade, or services in exchange for tangible personal property. The taxable amount is the price you set and or the full amount you receive, regardless of the items value, even if more than the value of the property, for example if you sell items in a silent auction.

Taxable Purchases

Your purchases may be subject to sales or use tax. If you purchase items for resale, but use it for anything other than resale or demonstration, you owe use tax on that item. You also owe use tax on items purchased outside of California for use in California. Tax also applies to purchases of items you use for your group such as supplies. You should not use a resale certificate when purchasing these items.

Resale Certificates

If you are a registered seller, you can make your purchases of items you intend to sell without paying tax. If you plan to use the item for any purpose, you should not use a resale certificate.

For more information, please see publication 103, Sales for Resale.

Sales Made on State-Designated Fairgrounds

Effective July 1, 2018, if you are a retailer who makes sales of tangible personal property that take place on the real property of a California state-designated fair (“state-designated fairground”), you must separately state the amount of those sales on your sales and use tax return.

Sales that take place on state-designated fairgrounds include over-the-counter sales on the fairgrounds. It may also include sales in which the property is shipped or delivered to or from the fairground. The separately reported amount will be used for funding allocation purposes only. There is no additional tax or fee due on these sales.

For more information on the new reporting requirement, please see Tax Guide for Reporting Requirements on State-Designated Fairgrounds.

Exemption from Sales and Use Tax on Certain Purchases for the Construction of Certain Military and Veteran Medical Facilities

Beginning January 1, 2019, through December 31, 2024, Revenue and Taxation Code (R&TC) section 6369.7 provides for a sales and use tax exemption on the sale and use of building materials and supplies purchased by a qualified person for use by that qualified person in the construction of a qualified facility.

A qualified person is either or both of the following:

A “qualified nonprofit organization,” which means an organization exempt from taxation under section 501(c)(3) of the Internal Revenue Code that constructs a “qualified facility” as a gift to the United States Department of Defense (USDOD), pursuant to section 2601 of Title 10 of the United States Code or the United States Department of Veterans Affairs (USDVA), pursuant to section 8301 of Title 38 of the United States Code; or
A contractor, sub-contractor, or builder working under contract with a “qualified nonprofit organization” to construct a “qualified facility.”

A “qualified facility” is either:

A medical facility, or a temporary residential facility for families of patients receiving care, including either or both inpatient and outpatient care, at a medical facility, located on a United States military base in California; or
A USDVA medical center, or a temporary residential facility for families of patients receiving care at or as part of a USDVA medical center, located in California.

Building materials and supplies that may be purchased under this exemption include any machinery, equipment, materials, accessories, appliances, contrivances, furniture, fixtures, and all technical equipment or other tangible personal property of any other nature or description that meet all of the following:

Are necessary to construct and equip a qualified facility.
Become part of the completed qualified facility.
Are transferred to the USDOD or USDVA as a gift, as specified.

The exemption does not apply to purchases of tools or other construction equipment that are not specified above and meet the three listed criteria.

This exemption from tax only applies to sales and purchases made after the date the USDOD or USDVA accepts the qualified nonprofit organization's offer to construct the qualified facility and on or before the date the USDOD or USDVA accepts the qualified facility.

If you are a qualified nonprofit organization constructing a qualified facility, you may issue CDTFA-230-C-2, Exemption Certificate for Property Used in the Construction of a Qualified Facility, to your vendors for your qualifying purchases of building materials and supplies.

A purchaser who issues an exemption certificate for its purchases made pursuant to R&TC section 6369.7, and who subsequently uses the items purchased in a manner not qualifying for the exemption, will be liable for the payment of tax (calculated on the sales price of the property), plus any applicable interest.

Recordkeeping

You should keep adequate records to report and pay the correct amount of tax.

Your records must show:

Gross receipts from all sales of physical products, including sales that are not taxable.
All deductions claimed on your sales and use tax returns
The total purchase price of all items purchased
The total selling price of all items sold, including items that were made or donated.

For more information please see our Keeping Records page.

Applying for the Welfare Exemption

The BOE and the county assessor jointly administer the welfare exemption.

They are responsible for determining if your organization is eligible to receive the exemption and if eligible, issues an Organizational Clearance Certificate. If you wish to claim the exemption, you must file a claim form requesting the clearance certificate. Claim forms can be found on the BOE webpage, Claim for Organizational Clearance Certificate — Welfare Exemption.

The county assessor determines if your use of the property is eligible for the exemption. Applications can be filed at the county assessor's office where the property is located. The assessor is responsible for granting or denying the application. See BOE's listing of county assessor's office locations.

For more information, please see BOE's frequently asked questions or you can watch our virtual seminar.