Nonprofit Resources
New Indiana Sales Tax Rules for Nonprofits and Churches Go Into Effect on July 1
NOTE: The rules outlined below are in effect for July 1, 2022, through June 30, 2023. These rules will be superseded by Indiana Senate Bill 417, which goes into effect on July 1, 2023. You can read about the new rules here.
Indiana is changing the circumstances under which nonprofit organizations, including churches, are exempt from collecting sales tax. The new rules are effective July 1, 2022.
Through June 30, 2022, sales by nonprofit organizations carried on for 30 or fewer days in a calendar year and engaged in as a fundraising activity are exempt from sales tax.
As of July 1, 2022, sales of no more than $20,000 in a calendar year engaged in as a fundraising activity are exempt from sales tax. Once a nonprofit organization passes the $20,000 threshold, it must collect state gross retail tax on subsequent sales for the remainder of the calendar year.
As with the prior rule, the $20,000 threshold applies to each calendar year. Therefore, sales counted toward the $20,000 threshold reset on January 1 every year. Consequently, a nonprofit organization or church may be required to collect sales tax in one year (because it exceeds the $20,000 threshold in that year), but may not be required to collect sales tax in the next year.
For the 2022 calendar year, organizations should use the 30 days rule through June 30 and the $20,000 rule as of July 1. In its Information Bulletin about the change, the Indiana Department of Revenue notes that:
… a nonprofit that has over 30 selling days before July 1 will be required to collect sales tax throughout the entire year, even if they do not reach $20,000 in sales after July 1. Conversely, a nonprofit that has reached $20,000 in sales for the year any time before July 1 will not count those sales towards determining whether they should collect sales tax. Only the sales made after June 30 should be counted.
This new rule does not change the long-standing exemption from sales tax for sales of periodicals, books, or other property that are intended primarily to further the educational, cultural, or religious purposes of the organization or for the improvement of the work skills or professional qualifications of the organization’s members, and where the sales are not used in carrying out a private or proprietary business. Thus, for example, sales of religious materials in a church bookstore remain exempt from sales tax as they were before.
Please contact us with any questions about how this may affect your organization.
Additional Resource:
Indiana Enacts Updated Sales Tax Rules Exempting Churches and Some Nonprofits
10 Comments
Please inform me of the origin of this rule change. Was it attached to State budget? Was it included in its own bill that passed through legislature? Or was it simply a change directed by Indiana Department of Revenue?
Also, what was the rationale for placing this tax on non-profits?
Richard,
This change in Indiana law was contained in Indiana Senate Bill 382, Section 31 (http://iga.in.gov/legislative/2022/bills/senate/382#document-dcfc6e18) enacted in the 2022 session of the Indiana General Assembly and signed into law on March 15, 2022 by Governor Holcomb.
It is actually considered a positive change for nonprofits in Indiana law. Prior to this change a nonprofit organization, including a church, that engaged in the sales of items for more than 30 nonconsecutive days during the year was required to register and collect and remit sales tax on the items it sold. Thus a church that had sales every Sunday of the year of goods that did not meet the exception for property sold that is designed and intended primarily for the church’s religious purposes would be required to collect sales tax on those sales, even though they were of nominal value. This new rule removes the number of days of sales rule in favor of a relatively high dollar sales threshold. So if an church or other nonprofit organization is selling goods that don’t qualify for another exception to sales tax, those sales must now exceed $20,000 per year before the organization will be required to collect and remit sales tax.
This change is not a tax on nonprofits; it does not require nonprofit organizations, including churches, to pay sales tax where they were previously exempt. Rather, it changes the rule that governs when nonprofits are required to collect sales tax from those to whom they sell items.
How does this impact all other nonprofits besides churches? Do they have to collect sales tax on ticket sales to events (that may include food, refreshments, etc)? Or what if they do an auction? Do they have to collect sales tax on that as well? If so, seems like a detriment to their operations as they may get many things donated (and then have to turn around and charge a sales tax?)
Lauren,
The Indiana Department of Revenue provides updated sales tax information in Sales Tax Information Bulletin #10 (https://www.in.gov/dor/files/sib10.pdf), which includes the change in law described in the article.
Sales tax applies to “retail sales” of “tangible personal property.” The new statute changed the manner in which the de minimis sales activity rule would be applied in Indiana. We changed from a rule that sales that occurred during 30 or fewer nonconsecutive days during the year with no dollar limit would escape sales taxation to a dollar-limit-based rule. So now “Sales of tangible personal property by qualified nonprofit organizations of not more than $20,000 in a calendar year used to raise funds to further the qualified nonprofit purposes of the organization are exempt from sales tax.”
This wording seems to me to clearly state that sales that would be taxed in other circumstances, including food and auction items, would be subject to sales tax, but only if the aggregate value of such items during the year exceeds $20,000. So the first $20,000 is tax exempt and only everything after that amount is reached is subject to the tax.
The Indiana Department of Revenue Sales Tax Information Bulletin cited above provides some useful examples regarding how organizations are to assess when they cross the $20,000 threshold and must begin assessing the tax. This example may be of specific usefulness to this reader:
“Example: A nonprofit operates a weekend festival on a Saturday and Sunday in October, which is normally their only selling activity for the entire year. In past years, they normally make between $18,000 to $24,000 in sales. If they exceed $20,000 in sales at some point on Sunday, the nonprofit is not required to “flip the switch” from that point forward and begin collecting sales tax the rest of the day. The nonprofit would be required to register after the event if they expect to have any further selling activity. Alternatively, if the nonprofit expects ahead of time that they were going to exceed $20,000 in sales that weekend, they could register ahead of time, or they could collect sales tax that weekend, and then register the following week to remit what they’ve collected.”
It is important to also note that for many faith-based organizations there is a significant exemption from sales tax for “items, such as periodicals, books, or other property, that are intended primarily to further the educational, cultural, or religious purposes of the organization.” This exception is unlikely to apply to food and many auction items, but will limit the items that count toward the $20,000 limit.
Richard,
We have a yearly two-day festival which has food booths, a live auction, and an online auction. There are also donated plants and crafts that are sold. Many of the auctioned items are purchased for much more than their value, with the purchaser realizing that they are supporting the not for profit. Would we need to make a distinction between the value of the purchase and the donation?
Dayton,
We asked the Indiana Department of Revenue (IDOR) about your question. The IDOR takes the position that the auction bidder’s winning bid is the base to which the sales tax rate is to be applied. The IDOR does not accept the argument that a bid in excess of fair market value should be divided into a part sale/part gift transaction such that the only the portion that equals the fair market value of the property should be subject to sales tax.
I work at a high school and we are non for profit. If we purchase candy bars to sell and pay the tax on them, do we have to pay sales tax if we sell over $20,000?
Sheila,
The fact that you paid sales tax to purchase the bars would not relieve you of the obligation to collect sales on subsequent sales if those sales are themselves taxable sales. To determine if the sales are taxable sales, it would be useful to know a little more about how and when the candy bars are being sold.
In addition, the $20,000 rule applies to the second half of 2022 and the first half of 2023 individually. For the second half of 2023 and beyond, the threshold is increased to $100,000. Prior to July 1, 2022, a 30-day rule applied. So if you sold candy bars on more than 30 days during the first half of 2022 (or any prior year), you would have had a sales tax collection obligation already, regardless of the dollar volume.
In Sales Tax Information Bulletin #10, the Indiana Department of Revenue described transitional rules for 2022 as the state converted from the 30-day rule to the $20,000 threshold. That transitional rule stated that if an organization exceeded 30 days of sales in the first half of 2022, then it would be obligated to collect sales tax for all of calendar 2022.
But the transitional rule noted that if you did not exceed 30 days of sales in the first half of 2022, then you would not count any of those pre-July 1, 2022 sales toward the 2022 $20,000 threshold amount. Rather, only sales occurring on or after July 1, 2022 through December 31, 2022 would count. But once you crossed the $20,000 threshold, any subsequent sales would be taxable.
The bulletin does not provide an example of what happens in the subsequent year if you find yourself above the $20,000 threshold, although presumably, given the language of the statute, you start back at zero and don’t collect sales tax until you hit the $20,000 mark again. That said, given that effective July 1, 2023 the $20,000 limit increases to $100,000, it appears likely that if you don’t sell $20,000 before July 1, 2023, and don’t exceed $100,000 by year’s end, you won’t have to collect any sales tax at all.
On a side note, if you are located in Indiana, you shouldn’t have to pay sales tax on your purchase of the candy bars. Rather, you should present the vendor with a valid sales tax exemption certificate that would exempt you on either the basis that you are a nonprofit organization or that you will be reselling the candy bars. Either rationale would work to exempt you from paying sales tax on the purchases.
Thank you for the information. Does the exemption applied to a church also apply to 501c3 religious nonprofits?
Hi Chris,
No. The exemption is limited specifically to churches.