With many states feeling the economic crunch of the times, many of them will availing themselves of every possible opportunity to beef up their revenue streams. As a result, an area of taxation that might be of greater concern to exempt organizations other than public charities is the sales and use tax.
The sales and use tax is imposed by most states on both individuals and organizations. Most states offer an exemption to sales and use tax only to public charities exempt under Section 501(c)(3). Therefore, membership organizations holding conventions and trade shows in a state other than that of their normal operations will need to be careful to abide by the sales and use tax regulations imposed by those states.
Items purchased for resale are exempt from taxation if a resale exemption has been applied for. Resale exemptions are available in every state. Where it gets tricky is when tangible personal property is purchased in one state and brought into another state for use. The most common example is with give away items at conventions, but the rules apply to all tangible personal property that is used in the ordinary course of business.
The two general rules that apply in most states are that organizations:
1) Owe use tax to their "home" states on purchases made from out-of-state or Internet sellers where no "home" state sales tax was collected at the time of purchase, and
2) Use tax is due on an item of tangible personal property if it is purchased out-of-state (for example, by telephone, over the Internet, by mail, or in person) and is used, given away, stored, or consumed in another state other than that organization's "home" state.
The first general rule above is fairly straight forward, but it is the second that tends to cause some confusion. In the case of a convention or trade show where an organization brings tangible personal property from their home state into another, use tax will be due to the extent the use tax rate in the other state exceeds the sales tax rate of the organization's home state. In the event the use tax rate is lower, no use tax will be due.
As confusing as all of this sounds, it is important to be aware of and understand the use tax rules of the various states an organization operates in because the penalties for non-compliance can be substantial.
Fred
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