Determining if a sale is taxable or non taxable.
Step 1. When determining whether a fundraiser or other type of sale is taxable or non taxable, the first consideration is whether the item is a taxable product. The following chart depicts examples of taxable and non taxable items. If the item is classified as non taxable, no sales tax should be assessed.
Step 2. The next consideration is whether the school group is considered a bona fide chapter according to State sales tax laws as stated below:
A bona fide chapter is a group that must be organized for some business or activity other than instruction or a participatory group. Essentially, any student group that is recognized by the school and is organized by electing officers (not just participatory captains), holding meetings, and conducting business are bona fide chapters of the school and each group may have two, one-day tax-free sales in a calendar year.
Groups meeting for classroom instruction or team sports are not categorized as bona fide chapters and do not qualify for the tax-free day sales. For example:
- The school district qualifies for a tax-free day
- The school-wide fundraiser qualifies for a tax-free day
- The Basketball Club qualifies, but the basketball team does not
- The Cheerleader Club qualifies but not the cheerleader team
- The Debate Club qualifies but debate teams and classes do not
- The French Club qualifies but the French classes do not
- The Senior Class qualifies but not one particular class that has seniors in it
Step 3. If the sales are considered taxable and the school group is considered a bona fide chapter, then the organization may deem the sale as one of its two, one-day tax-free sales.
- Each school district, each school and each bona fide chapter of each school is allowed to have two, one-day tax free sales each calendar year. To qualify for a tax-free sale, the organization must receive products deemed for sale in one shipment. Any items received after the initial shipment must be taxed. During these tax-free sales, the organization may sell any taxable item tax-free when the price of the item is $5,000.00 or less. There is no limit on the number of bona fide groups at a school or school district.
- Exception: Book Fairs – The school shall collect sales tax on all taxable sales. If the school assumes responsibility for the activity and/or sales, the school is responsible for insuring the tax is paid. Schools may purchase books tax free for their own use because educational organizations have a statutory exemption. However, when students or other individual’s purchase books, the purchase price is taxable and sales tax should be collected at the time of the sale. Sales tax is due regardless of whether the company makes the sale or the school makes the sale for a company on consignment.