Texas Tax Exempt Organizations: Collecting Sales Tax and One Day Tax-Free Sales

In our last blog we discussed the rules regarding tax exempt purchases by and to tax exempt organizations. When it come to collecting sales tax, tax exempt organizations are required to collect and remit sales tax for all taxable items sold. A sales tax exemption is for purchases and does not cover sales. As with most rules and regulations, there are exceptions.

If an organization raises all its funds via sales made thru tax-free fundraisers, they are not required to register and obtain a sales tax permit. Additionally, sales tax is not collected on the sale of meals and food products such as candy and soft drinks if they are sold by churches or at church functions, sold or served by a public or private school, school district, student organization or parent-teacher association during the regular school day. Sales can include vending machines or sales by members or volunteers of education, physical training or religious training non-profit organizations as part of an organizations fund-raising drive when all proceeds are for exclusive use by the organization.

Sales for an Organization’s annual banquet or supper are tax free provided the following criteria is met: The event is not held in a restaurant, hotel or similar type of business. The meal is not professionally catered and is prepared and served by members of the organization. The event is not in competition with a retailer required to collect tax.

Religious, educational or charitable exempt organization chapters as well as 501 (c)(3), (4), (8), (10) or (19) status can hold two, one-day, tax-free sales or auctions each calendar year (January – December). Youth athletic organizations, volunteer fire departments, chambers of commerce and governmental entities do not fall under this rule. It’s important to note that combined one-day sales held by two or more groups counts as one tax-free sale for each organization. Higher education, student organizations can hold one tax-free sale per year provided the organization is not engaged in business or is performing an activity designed to make a profit. Additionally, the funds raised must be for direct use by the organization. During these one-day sales, exempt organizations are not required to collect sales tax on items under $5000, items over $5000 are only tax-free if they are manufactured by the organization or are donated and not sold back to the donor.

Senior Citizens groups may hold no more than 4 fundraising events per year that total no more than 20 combined days per calendar year. Items sold during fundraising events must be made by the organization members.

Amusement services such as the sale of tickets to a school carnival, dance, athletic event or band concert are not taxable provided the event qualifies. To qualify the organization must be listed as the sole provider in advertising as well as on the physical ticket.

The application for exemption can be found online here: Exemption Forms Index

More information can be found at Guidelines to Texas Tax Exemptions (96-1045)

About Davis Davis & Harmon LLC – Sales Tax Experts: Headquartered in Dallas, Texas, Davis Davis & Harmon LLC – Sales Tax Experts specializes in sales/use tax refund recovery and audit defense. Our team of consultants is comprised of former Big 4 sales tax consultants and state sales tax auditors. Each of our consultants has 15 to 20 years of experience, providing our clients with access to a highly specialized team of sales/use tax professionals. At Davis Davis & Harmon, LLC we are committed to maintaining the highest standards in our talent pool. We work hard to meet our clients’ needs by ensuring that you view our firm as an extension of your company and a member of your team.

For sales/use tax compliance questions or audit-related concerns, we are here to help!

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