Tax Guide for Nonprofit Organizations

We recognize that understanding tax issues related to your organization can be time-consuming and complicated. We want to help you get the information you need so that you can focus on starting and growing your organization.

To help you better understand the tax obligations specific to nonprofit organizations we have created this guide.



How to Use This Guide

Caterers

Each section of this guide contains information important to your business. The Getting Started section provides key resources related to registration, filing returns, account maintenance and other important information you need.

The Industry Topics section covers general information in an at-a-glance format that can be expanded to provide more extensive information if you need it.

The Types of Organizations section covers special situations, including exemptions specific to each group.

Lastly, the Resources provides links to a wealth of information, including web-based seminars, publications, statutory and regulatory information, and access to live help from our customer service representatives.

Please note that the information included is general in nature and is not intended to replace any law or regulation.



Caterer

If You Need Help

If at any time you need assistance with topics included in this guide – or with others we may have not included - feel free to contact us by telephone or email for assistance. Contact information and hours of operation are available in the Resources section.

If you have suggestions for improving this guide, please contact us by email.

Getting Started

Although many nonprofit and religious organizations are exempt from federal and state income tax, there is no similar broad exemption from California sales and use tax. While there is no general sales tax exclusion for nonprofit organizations, certain types of organizations are eligible for specific tax exemptions and exclusions.

You will find these tools helpful in registering or maintaining your account or researching valuable information about your nonprofit organization.

Registration

Online Registration — Register with us for your seller's permit, or add a business location to an existing account.

Filing and Payments

You may find these links helpful in determining which Income and Property tax exemptions you may qualify for.

Industry Topics

Sales and Use Taxes in General

In California, all sales are taxable unless the law provides a specific exemption. In most cases, taxable sales are of tangible personal property, which the law defines as an item that can be seen, weighed, measured, felt or touched.

Use tax is a companion to California's sales tax, and is due whenever you purchase taxable items without payment of California sales tax from an out-of-state vendor for use in California. You also owe use tax on items that you remove from your inventory and use in California when you did not pay tax when you purchased the items. To pay use tax, report the purchase price of the taxable items under "Purchases Subject to Use Tax" on your sales and use tax return. Those purchases become part of the total amount that is subject to tax.

For nonprofit organizations tax generally applies regardless of whether the items you sell or purchase are new, used, donated, or homemade.

Activities considered sales:

  • Sales of food, meals, beverages, and similar items under a number of different circumstances.
  • Sales of tickets that buyers will exchange for food, beverages, or other physical products.
  • Sales of booklets, books, pamphlets and similar items.
  • Sales of tickets for fundraising events when the ticket price includes amounts for food or beverages.
  • Sales of items at rummage sales, bazaars, carnival booths, community events, and other fundraisers.
  • Sales of merchandise in Internet, live, and silent auctions.
  • Sales of tickets for game booths where prizes are guaranteed to each ticket purchaser, even when the prizes have little value. Examples include white elephant, fish pond, grab bag, and "pitch-'til-you-win" games.

Activities not considered sales:

  • The gifting of merchandise for a true donation: an amount someone gives your organization without expecting to receive merchandise of equal value in return.
  • Sales of tickets for concerts, movies, plays, shows, and similar events when food and meals are not included in the ticket price.
  • Sales of tickets for game booths and raffles when prizes are not guaranteed to every ticket purchaser.
  • The sale of travel, home rentals, guide services, personal services, tutoring, and other things of value that are not physical products.
  • Sales of gift cards, gift certificates, and coupon books.
  • Membership drives and other fundraising activities that do not involve the exchange of merchandise or that include merchandise premiums of a much lower value than the donation or membership amount.
  • Sales of advertising that does not involve exchanges of merchandise.

Is Your Organization Exempt From Sales Tax?

If you believe your sales or purchases are exempt from sales and use tax, you can write to us to review your eligibility.

Sales or use tax does not apply to your sales if you meet all of the following qualifications:

  • You are formed and operated for charitable purposes.
  • You qualify for the "welfare exemption" from property tax at the location where you sell merchandise.
  • You sell or donate items principally to assist recipients in distressed financial conditions.
  • You make, prepare, assemble, or manufacture the items you sell or donate.

If you qualify for special exemptions, we will send you a verification letter and let you know what to provide to your suppliers as evidence of your status.

Send your requests to:

Compliance and Technology Section, MIC: 40
Board of Equalization
PO Box 942879
Sacramento, CA 94279-0040

You must provide:

  • Your type of organization.
  • A letter describing your practices and activities.
  • Letters from Franchise Tax Board and the Internal Revenue Service verifying your tax-exempt status.
  • A copy of your articles of incorporation and/or bylaws.
  • Welfare exemption verification (if applicable).

Obtaining a Seller's Permit

You generally need a seller's permit anytime you make sales of merchandise in California, even if all your sales are nontaxable.

If your group holds less than three fundraising events with taxable sales each year, you may apply for temporary seller's permits for each event.

If you conduct three or more fundraising sales each year, or if your taxable sales activities occur continuously, you should apply for a regular seller's permit.

Even when you are eligible for a temporary permit, you may find it easier to hold a regular permit. This keeps you from forgetting to apply for the temporary before each event and ensures that we automatically send your tax returns.

If you have held an event without applying for a permit, you should contact us immediately. Prompt action could allow you to apply, file, and pay before penalties and interest are due.

You can apply for a permit easily using our online registration, in person at any of our field offices, or through the mail. Registering for the permit is free, although in some cases a security deposit may be required.

Collecting and Paying Tax

It is your responsibility to apply for the permit, reports your sales, file returns, and pay the tax due.

Taxable Sales

Generally, the amount you receive in exchange for merchandise is taxable. This is true whether you receive cash, barter, trade, or services in exchange for tangible personal property. The taxable amount is the price you set and or the full amount you receive, regardless of the items value, even if more than the value of the property, for example if you sell items in a silent auction.

Taxable Purchases

Your purchases may be subject to sales or use tax. If you purchase items for resale, but use it for anything other than resale or demonstration, you owe use tax on that item. You also owe use tax on items purchased outside of California for use in California. Tax also applies to purchases of items you use for your group such as supplies. You should not use a resale certificate when purchasing these items.

Resale Certificates

If you are a registered seller, you can make your purchases of items you intend to sell without paying tax. If you plan to use the item for any purpose, you should not use a resale certificate.

For more information, please see BOE publication 42, Resale Certificate Tips

Recordkeeping

You should keep adequate records to report and pay the correct amount of tax.

Your records must show:

  • Gross receipts from all sales of physical products, including sales that are not taxable.
  • All deductions claimed on your sales and use tax returns
  • The total purchase price of all items purchased
  • The total selling price of all items sold, including items that were made or donated.

For more information please see http://www.boe.ca.gov/sutax/faqrec.htm

Applying for the Welfare Exemption

The BOE and the county assessor jointly administer the welfare exemption.

We are responsible for determining if your organization is eligible to receive the exemption and if eligible, issues an Organizational Clearance Certificate. If you wish to claim the exemption, you must file a claim form requesting the clearance certificate. Claim forms can be found here.

The county assessor determines if your use of the property is eligible for the exemption. Applications can be filed at the county assessor's office where the property is located. The assessor is responsible for granting or denying the application. See our listing of county assessor's office locations.

For more information, please see our frequently asked questions or you can watch our virtual seminar here.

Organization Types

Charitable Organizations That Relieve Poverty and Distress

You generally must hold a seller's permit, even if all of your sales are nontaxable.

Sales or use tax does not apply to your sales if you meet all of the following qualifications:

  • You are formed and operated for charitable purposes.
  • You qualify for the "welfare exemption" from property tax at the location where you sell merchandise.
  • You carry out activities that relieve poverty and distress.
  • You sell or donate items principally to assist recipients in distressed financial conditions.
  • You make, prepare, assemble, or manufacture the items you sell or donate.

If you qualify, your purchases may also be exempt if you donate or sell the items you purchase. Items purchased for your own use are taxable.

Cultural Organization: Museums, Government Art Programs, Library Support Organizations,
and Zoological Societies

You generally must hold a permit if you make sales of merchandise. Unless you qualify for a special exemption listed below, your sales are taxable.

When you buy merchandise you intend to resale, you may issue a resale certificate.

Works of Art

Under specific conditions, the sale or purchase of original works of art, for permanent collections on public display, are exempt from sales and use tax. The work of art must be:

  • Purchased by the state or any California city, county or other local government entity for free public display.
  • Purchased by a nonprofit organization operating a public museum under contract with a government entity described above.
  • Purchased by a nonprofit organization exempt from state income taxes for a museum open to the public at least 35 weeks a year for at least 20 hours a week. The buyer or another qualifying nonprofit organization must operate the museum.
  • Purchased by any buyer from a retailer for donation to a qualifying organization or government entity. The retailer must deliver the artwork directly to the donee. The donor must transfer ownership to the recipient in writing.

Leases of original works of art are exempt from sales or use tax when both of the following conditions are met:

  • Both parties to the lease are nonprofit organizations.
  • The term of the lease is at least 35 years.

The definition of art work also includes a costume, dress, clothing, or personal adornment.

Losses of artwork: If you lose an original work of art to fire, flood, earthquake, and other causes, tax does not apply to replacement art as long as all of the following criteria are met:

  • Purchased to replace a museum display piece that was destroyed by a natural disaster.
  • Purchased within three years of the incident.
  • Used exclusively for display.
  • Valued at the same or lesser amount as the destroyed item on the date it was destroyed.

The replacement piece does not have to be similar to the destroyed piece.

To qualify for this exemption, the purchase must be made by one of the following:

  • A nonprofit museum regularly open to the public and operated by or for a local or state government entity.
  • A nonprofit museum regularly open to the public and operated by a nonprofit organization exempt from state income tax.
  • A state or local government entity for its art collection that is open to the public without charge.

Items used to display the art, such as lighting fixtures do not qualify under this exemption.

Nonprofit organizations assisting museums: rummage sales

If you hold annual rummage sales to assist California city or county museums:

  • During your first five consecutive annual sales, all of your sales are taxable. You must report and pay sales tax on all of your proceeds.
  • On your sixth consecutive annual rummage sale and each consecutive sale after, if all profits are used exclusively by your organization, your sales are no longer taxable, however, you still need to hold an active seller's permit.

Friends of the Library

You are not required to collect or pay tax on items you sell when you meet both of the following conditions:

  • You perform auxiliary services to a library district, municipal library, or county library in California as authorized by the library's governing authority.
  • All of your profits from the sales are used exclusively by the library.

You do not have to report sales tax on your sales; however you may be required to pay tax on your purchases.

Zoological Societies

The sale, purchase, trade, or exchange of certain animals and plants are not taxable when both of the following conditions are met:

  • The animal or plant is a member of a threatened or endangered species listed on one of the CITES appendixes or the federal threatened or endangered species list. Please see www.cites.org for more information.
  • The buyer and seller are nonprofit zoological societies.

Donations

You owe use tax on items withdrawn from resale inventory that are not sold or used for display. However, items withdrawn from resale inventory and donated to organizations such as nonprofit museums, art galleries, and libraries are not taxable.

Generally, donations of gift cards, gift certificates, checks, cash, or services are not subject to tax since there is not an exchange of merchandise or goods.

Veterans' Organizations

You are required to register for a seller's permit. Generally, items you sell are taxable.

This is true whether you buy the goods, make them, or receive them as a donation. Items you purchase can be bought with a resale certificate if you intend to resell them. Items purchased for use by your group are taxable.

When you sell American flags, if the profits are used exclusively by the organization, sales of the flags are not taxable. Tax does apply to materials you purchase to make the flags.

When you sell "Buddy Poppies" or similar symbolic, temporary lapel pins the purchase and sale of the items are not taxable when both of the following conditions are met:

  • The pins are sold or purchased by the Veterans of Foreign Wars or other specified organizations.
  • The pins memorialize U.S. military veterans killed in foreign wars.

Tax does not apply to your sales of meals and food products when all of the following conditions are met:

  • You sell the food or meals at a social or other gathering you conduct.
  • You furnish the meals or food to raise funds for your organization's functions and activities.
  • You use the proceeds to carry out those functions and activities.

Note: if you serve carbonated and alcoholic beverages included in a single price of a meal, those items are not taxable. If carbonated beverages or alcoholic beverages are sold for a separate price, those receipts are taxable.

Religious Organizations

Your sales and purchases of goods, including food for other than the specific exemption for meals below, are generally taxable. You are required to register for a seller's permit.

This is true whether you buy the goods, make them, or receive them as a donation. When you participate in fundraising events such as auctions, festivals, firework stands, craft shows, etc. your sales of nonfood items are taxable. This also applies when you sell items at church bookstores, from tables in the church at events, by internet, or by mail.

The meal exemption is specifically for meals served for fundraising purposes and you must qualify for the property tax exemption. In addition, all of the following conditions must be met:

  • You sell the food at a social or other gathering you conduct.
  • You furnish the meals to raise funds for your organization's functions and activities.
  • You use the proceeds to carry out those functions and activities.

You qualify for this exemption even if someone else serves the meals. You may use a resale certificate for purchase of these meals from a restaurant or caterer. If you do not meet all of the conditions, your sales of meals are taxable.

Note: if you serve carbonated and alcoholic beverages included in the price of a meal, those items are not taxable. If carbonated beverages or alcoholic beverages are sold for a separate price, those receipts are taxable.

Donations

A true donation is an amount someone gives without expecting goods in return. If someone makes a true donation, the donation is not taxable.

You owe use tax on items withdrawn from inventory that are not sold or used for display. However, items withdrawn from resale inventory and donated to qualified religious organizations are not taxable.

Generally, donations of gift cards, gift certificates, checks, cash, or services are not subject to sales tax since there is not an exchange of merchandise or goods.

Social and Fraternal Organizations

Your sales and purchases of goods, including food other than the specific exemption for meals below, are generally taxable. You are required to register for a seller's permit.

This is true whether you buy the goods, make them, or receive them as a donation. When you participate in fundraising events such as auctions, festivals, firework stands, craft shows, etc. your sales of nonfood items are taxable.

Sales tax applies to your sales of meals the same way it applies to sales of other good unless both of the following conditions are met:

  • You sell meals, food, and beverages exclusively to your members. Items paid for by members but consumed by guests are considered sold to members.
  • You make these sales less than once a week.

If a nonmember attends even one of your dinners and pays for their own meal, all food and drinks from all dinners held becomes taxable. Members must pay for their guests' meals for this exemption to apply.

Note: if you serve carbonated and alcoholic beverages included in the price of a meal, those items are not taxable. If carbonated beverages or alcoholic beverages are sold for a separate price, those receipts are taxable.

When food is served by a caterer, you may issue a resale certificate and report the sales as part of your gross receipts. The meals would be taxable unless they qualify under the specific exemption above.

Tax applies to purchases of food from a restaurant regardless of the conditions if the food is served at the restaurant.

Donations

You owe use tax on items withdrawn from resale inventory that are not sold or used for display. However, items withdrawn from resale inventory and donated to fraternal organizations are not taxable.

Generally, donations of gift cards, gift certificates, checks, cash, or services are not subject to sales tax since there is not an exchange of merchandise or goods.

Schools, Parent-Teacher Associations, Children's Organizations, Youth Organizations
and Children's Clothing

Generally, sales from these groups are not taxable and you are not required to hold a seller's permit.

There are some exceptions noted below where items would be taxable. If your items are taxable, a seller's permit is required.

Schools

Sales of meals or individual food products sold to students are not taxable when the sales are made by public or private schools, school districts, student organizations, parent-teacher organizations, or any blind person operating a restaurant, vending machine, or vending stand in an educational institution. To qualify as not taxable, the food must be served during a time regularly set aside for meals, not recess or breaks.

Sales of food products that are taxable:

  • Sales of edible nonfood products, such as carbonated beverages, unless they are sold as part of a meal for a single price.
  • Sales of food to students and nonstudents in a place where admission is charged, such as an athletic event, even when the event is held at a school.
  • Sales of meals and food products to nonstudents.

Sales made by caterers are taxable unless:

  • The premises used by the caterer to serve the lunches to the students are used by the school for other purposes such as sporting events and other school activities during the remainder of the day.
  • The fixtures and equipment used by the caterer are owned and maintained by the school; and
  • The students purchasing the meals cannot distinguish the caterer from the employees of the school.

Sales of yearbooks and catalogs are not taxable if they are prepared for the school and distributed to students. There is no restriction on how the profits may be used. Tax must be paid by the group on materials and supplies to make the yearbooks or catalogs.

Donations

You owe use tax on items withdrawn from resale inventory that are not sold or used for display. However, items withdrawn from resale inventory and donated to nonprofit school are not taxable.

Generally, donations of gift cards, gift certificates, checks, cash, or services are not subject to sales tax since there is not an exchange of merchandise or goods.

Loans to Schools

Certain loans by retailers are exempt from use tax, including:

  • Loans of items to a school district for a district educational program.
  • Loans of motor vehicles to be used exclusively in driver training programs by accredited private or parochial secondary schools. The driver training program must be approved by the State Department of Education as a regularly conducted course of study.
  • Loans of motor vehicles to the California State University or the University of California for exclusive use in an approved driver education program connected to the university.

Donations of Children's NEW clothing

Effective January 1, 2008 through December 31, 2013, if your group is organized for charitable purposes and is exempt from state income tax, you may purchase clothing without paying sales or use tax if the clothing is new and will be distributed to individual under the age of 18 to assist those in financial need. During the effective period, it is not necessary that your group be organized specifically to relieve poverty or distress to qualify for this exemption.

Parent organizations

Parent cooperative nursery school associations' sales are not taxable provided that the resulting profits are used exclusively for the cooperative.

Parent-Teacher Associations (PTAs) sales are not taxable provided that the resulting profits are used exclusively for the PTA. In order to qualify for this status, your group must meet all of the following conditions:

  • Be a nonprofit organization that includes parents.
  • The objectives include enhancing the welfare of all students in the school and developing better communication between parents and school authorities. (Groups whose efforts target a select group of students, such as athletic booster clubs, do not qualify.)
  • The group must be authorized to operate in the school by the school's governing authority.
  • The profits must be used solely to advance the group's purpose.

You are not required to register for a seller's permit. You will pay tax on items you purchase; you may not issue a resale certificate.

Nonprofit Youth Organizations

When you sell goods such as t-shirts, wrapping paper, mugs, etc. you are required to register for a seller's permit and your sales are taxable.

However, if your group qualifies under one of the following:

  • You are a group that is tax-exempt as a 501(c) and your primary purpose is to provide supervised competitive sports to promote good youth citizenship that does not discriminate on the basis of race, sex, nationality, or religion.
  • You are a youth group or club such as a debate team, swim team, choir, etc. sponsored by or affiliated with a qualified school that does not discriminate on the basis of race, sex, nationality, or religion.

    AND your group does all of the following:

  • Sells food products or nonalcoholic beverages, or items made by members of the group.
  • Makes sales on an irregular basis. (This does not include storefront sales.)
  • You use the profits exclusively to advance the group's purposes.

    Your sales are not taxable, you do not need a seller's permit, and you will be required to pay sales tax when you purchase items to sell.

Groups That Provide Human Services and Goods Related to Medical or Health Information, Disabilities, HIV/AIDS, Nutrition, and Homelessness

Your sales and purchases of goods, including food are generally taxable.

This is true whether you buy the goods, make them, or receive them as a donation.

Medical health information literature or health and safety materials

You are not required to pay use tax on the purchase, storage or other use of literature, provided that you meet all of these conditions:

  • You purchase the literature from your organization's national or branch office.
  • Your organization if formed and operated for charitable purposes.
  • Your organization qualifies for the welfare exemption from property taxation.

This exemption also applies to the purchase, storage, or distribution of health and safety educational materials you routinely sell in connection with health and safety and first aid classes. To qualify for this part, you must routinely distribute health and safety information and meet all of the above conditions. Other sales of medical health information or health and safety materials are taxable.

Thrift stores benefiting individuals with HIV or AIDS

Tax does not apply to sales of used clothing, household items, or other retail merchandise if the thrift store is operated to raise funds that will be used to provide medical, hospice, or social services for individuals chronically ill with HIV or AIDS and:

  • You spend at least 75 percent of the store's net revenues providing medical, hospice, or social services described above, and
  • You are exempt from state income tax

If you believe you qualify for this exemption, you may request an eligibility review.

Organizations providing services to people with developmental disabilities or children with severe emotional disturbances

In order for your sales to be nontaxable your organization must:

  • Be tax-exempt under section 501(c)(3).
  • Not discriminate on the basis of race, sex, nationality, or religion.

In addition, you must meet all of the following conditions:

  • The items sold are handcrafted or artistic and designed, created, or made by individuals with development disabilities or children with severe emotional disturbances. Those individual members must be of your organization or receive services from it.
  • Each items sells for $20 or less.
  • Your organization makes sales on an irregular or intermittent basis.
  • You use the profits from your sales exclusively for your organization.

Your purchases of materials and supplies to make these crafts are taxable.

Organizations and institutions that serve meals or food

A nonprofit volunteer home-delivery organization that delivers food to homebound elderly people or people with disabilities does not have to pay tax on sales of meals.

A nonprofit organization that serves meals to low-income elderly people does not have to pay tax on meals if both of the following conditions are met:

  • The meals are served at or below the organizations cost.
  • The meals are provided under a state-financed or federally-financed program.

Sales of meals to specific institutions are not taxable. These institutions include:

  • Qualified health care facilities.
  • Qualified community care facilities.
  • Qualified residential care facilities for the elderly.
  • Qualified alcoholism recovery, drug recovery, or drug treatment facilities.
  • Any house or institution financed by state or federal programs that (1) serves as a principal residence exclusively for people age 62 or older, and (2) supplies room and board for a flat monthly rate.

In addition, sales tax does not apply to your purchases of food products, meals, and non-reusable items that become parts of meals or food products such as straws, paper napkins, and carbonated beverages. These must be furnished or served only to patients or residents.

For more information, please see Regulation 1503, Hospitals and Other Medical Service Facilities, Institutions and Homes for the Care of Persons.

Homeless shelters may qualify to make nontaxable sales. Sales made at auctions held to benefit homeless shelters are not taxable if conducted by or affiliated with a nonprofit organization and all of the following are met:

  • The funds raised are spent to benefit the homeless shelter and homeless people.
  • The organization is exempt from state income tax.
  • The organization conducts only one such auction during any 12 month period.

Resources

Need to know more? Follow the links below for more information about the topics covered in this guide, as well as other information you might find helpful:

Top Resources

Other Industry-Specific Resources

Other Helpful Resources

  • Sign Up for BOE Updates — Subscribe to our email lists and receive the latest news, newsletters, tax and fee updates, public meeting agendas, and other announcements.
  • Videos and How-To Guides — These resources will help you avoid common mistakes, file your tax returns online, and more.
  • City and County Tax Rates — A listing of current and historical tax rates.
  • Special Notices — BOE special notices are issued whenever there is a change in law, tax rates, or BOE procedures.
  • BOE Online Services — Learn about the online services BOE offers.
  • Verify a Permit or License — You can use this application to verify a seller's permit, Cigarette and Tobacco product retailer license, eWaste account, or Underground Storage Tank Maintenance Fee Account.
  • BOE Field Offices — A comprehensive listing of all BOE field offices and contact information.
  • Find Your Board Member — You can use this application to quickly identify your elected BOE representative.
  • Get It In Writing! — The Sales and Use Tax Law can be complex, and you are encouraged to put your tax questions in writing.
  • Taxpayers' Rights Advocate (TRA) — The TRA Office helps taxpayers when they are unable to resolve a matter through normal channels, when they want information regarding procedures relating to a particular set of circumstances, or when there are apparent rights violations.
  • Contact Us — A listing of BOE contacts for your questions and concerns.