Do you sell merchandise to the public? Don’t forget sales tax!
In Illinois, a seller of merchandise is responsible for paying sales tax on merchandise sold. A not-for-profit organization is responsible for paying sales tax on merchandise it sells, even though it is exempt from paying income tax. Illinois does not collect income tax from not-for-profit organizations which have obtained a tax exemption from the IRS. However, your application for an income tax exemption does not apply to sales taxes.
The State of Illinois collects sales tax on the sale of products and services in Illinois. The tax must be paid by the business that sold the item, but the business usually collects the tax from its customers. If the business does not collect the tax from the customer at the time of the sale, the business must still pay the sales tax to the state. There is no general sales tax exemption for not-for-profit organizations. If your not-for-profit organization regularly sells products or services to the public, it must pay the sales tax on those sales.
On the other hand, if your not-for-profit organization purchases items from a store, the store is collecting sales tax from you. In order to avoid paying this sales tax, your organization must apply for an E number from the Illinois Department of Revenue. An E number means that any purchases your organization makes are exempt from sales tax and stores cannot make you pay sales tax on your purchases. However, an E number does not mean that your organization is exempt from paying sales tax when it sells items.
Your organization must still determine when it owes sales tax on the items it sells. There are several types of sales which do not trigger Illinois’s sales tax:
• When a not-for-profit organization sells something to another not-for-profit organization, no sales tax is required if the other organization has an E number
• If a not-for-profit organization does not regularly sell items, no sales tax is due on isolated or occasional sales, regardless of who the buyer is
• When a not-for-profit organization sells items to its own members, no sales tax is owed on the transactions if the members use the items to help the organization
• If a not-for-profit organization sells items and the money goes to charity, such sales are exempt from sales tax
• Sales of newspapers and magazines are always exempt from sales tax
There are several other exemptions from sales tax, which depend on the type of not-for-profit organization and the type of sale. However, a not-for-profit organization must pay sales tax when it sells items to the public unless an exemption can be found. An income tax exemption has no effect on the sales tax. The organization must also keep track of all sales, even when no sales tax is required. To discuss how the sales tax affects your organization or to apply for an E number, please give us a call for more information.