Fundraising by Nonprofit Organizations
School Advisor , 2006 Issue No. 2

Recently the Michigan Department of Treasury (the Treasury) clarified its position regarding the de minimis sales tax exemption for fundraising by nonprofit organizations. While this does not directly affect your district, it does potentially impact the various 501(c) (3) organizations associated with the district such as the band boosters, PTA, etc.

The basic rule is nonprofit organizations are required to collect and remit sales tax on sales of tangible personal property, except for de minimis fundraising activities. De minimis fundraising activity is defined as aggregate retail sales in the calendar year of $5,000 or less. Registration for a sales tax license is required even if an organization has less than $5,000 in sales.

The clarification from the Treasury is a nonprofit organization affiliated with a school is not considered a separate entity for purposes of this exemption. “School” is defined as each elementary, middle, junior, or high school site within a local school district. Furthermore, the Treasury takes the position that all sales of tangible personal property are to be considered regardless of the fact they may be otherwise exempt from tax.

The bottom line is that most 501(c)(3) organizations affiliated with a school would not qualify for the de minimis exemption because the school itself would generally have sales exceeding $5,000 in a calendar year. For example, although sales of hot lunches by a school to students are exempt from sales tax, those sales generally exceed $5,000 in a calendar year. Therefore, any booster club or PTA affiliated with that school would be required to collect and remit sales tax on all its fundraising sales. This would include food and beverages served at a fundraising event or at a concession stand, as well as items sold as part of an auction.

While it is not the district’s responsibility to oversee your affiliated 501(c)(3) organizations, we thought we’d make you aware of the Treasury’s position.