Could a qualified nonprofit treated as the consumer add sales tax reimbursement to its fundraising price?

Plain-English summary

At the requester's direction, Staff Counsel assumed without deciding that an unidentified organization qualified as a consumer under Regulation 1597. The described organization bought items such as sweatshirts for $15 each, plus $0.40 shipping, and paid $1.24 in sales tax reimbursement on the $15 purchase price. Seeking a $5 profit, it advertised a sweatshirt for $20, then added $0.40 shipping and $1.24 tax under the combined label shipping and tax, producing a $21.64 customer price.

The letter explained the assumed consumer framework: vendor sales to the organization were taxable, while the organization's sales to customers were not. Because those customer sales were not taxable, the organization could not charge customers an amount designated as tax. Any amount it collected as tax was excess tax reimbursement and had to be refunded to the customer or paid to the Board.

Source and live-annotation limits

The PDF does not include the January 24 request letter or the stated enclosure, Regulation 1597. It identifies neither the requester nor organization and supplies no formation, exemption or qualification record, fundraising event, sweatshirt, vendor, customer, purchase, invoice, advertised offer, sale, receipt, tax-payment record, refund, Board remittance, return, audit, assessment, claim, appeal, implementation, or later outcome. The specific prices, charges, profit, and total are facts stated in the request as summarized by Staff Counsel; the published source does not document completed transactions.

The live annotation preserves qualified-nonprofit consumer treatment, fundraising sales, the prohibition on customer tax or tax-reimbursement charges, excess-reimbursement treatment, refund-or-Board-payment alternatives, and date. It generalizes the supporting letter's expressly assumed qualification into Certain qualified nonprofit organizations and omits the requester and author, January 24 letter, Regulation 1597 enclosure, complete sweatshirt pricing example, vendor-sale tax treatment, statutory background, hard-copy follow-up instruction, San Jose District copy, missing records, and absent implementation or outcome.

What this means for you

Nonprofit fundraisers, merchandise sellers, and tax professionals

First establish whether the organization is a consumer or retailer under current law; this letter merely assumes consumer status. Preserve qualification and exemption records, fundraising materials, product and vendor records, purchase prices and shipping, sales tax reimbursement paid, advertised and invoiced customer prices, how every customer charge is labeled, receipts, refunds or remittances, returns, tax calculations, and payments. A separately itemized customer amount designated as tax is not validated merely because it equals acquisition-stage tax already paid.

Common questions

Could the nonprofit pass through the tax it paid by labeling a customer charge as tax?

No.

What happened if it collected an amount designated as tax?

It had to refund the amount to the customer or pay it to the Board.

Did the opinion decide whether every nonprofit qualifies as a consumer?

No. It applied the question's express assumption that this organization qualified under Regulation 1597.

Could the organization recover its $1.24 acquisition tax as a customer charge labeled tax?

No. The letter treated a customer amount designated as tax as excess tax reimbursement because the assumed consumer's customer sale was not taxable.

Did the official source document an actual collection, refund, or Board payment?

No. It summarizes the requester's pricing description but supplies no transaction or payment records and no later outcome.

Citations and references

• California Revenue and Taxation Code §§ 6007, 6051, 6201, 6359.3, 6360, 6361, 6361.1, 6370, and 6401
• California Code of Regulations, title 18, §§ 1597 and 1700(b)
• January 24, 1995 request letter — not included
• Regulation 1597 — identified as an enclosure but not included
• Organization, qualification, fundraising, product, vendor, customer, pricing, transaction, refund, remittance, reporting, tax, and later-proceeding records — implicated but not documented

Verbatim support

From the official Staff Counsel letter:

You indicate in your letter that in answering your question, you wish for us to assume that the organization qualifies as a consumer as explained in Regulation 1597, a copy of which is enclosed.

If the organization is the consumer and not the retailer, the sales REDACTED TEXT and other vendors make to the organization are taxable, but the sales made by the organization to its customers are not taxable.

Any amount designated by the organization as tax and collected from its customer as tax constitutes excess tax reimbursement, and must be refunded to the customer or paid to the Board.

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/390-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/390-0610.pdf

Original ruling text

390.0610

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

April 6, 1995

REDACTED TEXT

Re: REDACTED TEXT
Dear REDACTED TEXT:
This is in response to your letter dated January 24, 1995 regarding the application of tax to fund-raising activities. You ask whether an organization considered a qualified nonprofit organization as explained in Regulation 1597 may charge its customers tax. You state that the organization purchases items such as sweatshirts at $15 each plus $.40 shipping, and pays sales tax (reimbursement) on the $15 purchase price ($1.24). The organization wishes to realize $5 profit, so each sweatshirt is advertised for sale at $20. At the time of the sale, the organization adds on a $.40 shipping charge and $1.24 tax, with the charges itemized as "shipping and tax," for a total sale price of $21.64. Retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempt by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) When sales tax does not apply, use tax, measured by the sales price of the property sold, applies to the use of tangible personal property purchased from a retailer for storage, use, or other consumption in California. (Rev. & Tax. Code §§ 6201, 6401.) The general rule is that sales of tangible personal property are presumed to be taxable retail sales. You indicate in your letter that in answering your question, you wish for us to assume that the organization qualifies as a consumer as explained in Regulation 1597, a copy of which is enclosed. Regulation 1597 interprets and explains the provisions of Revenue and Taxation Code sections 6359.3, 6360, 6361, 6361.1, and 6370. If the organization is the consumer and not the retailer, the sales REDACTED TEXT and other vendors make to the organization are taxable, but the sales made by the organization to its customers are not taxable.

REDACTED TEXT

-2-

April 6, 1995

Since the organization's sales are not taxable, the organization may not charge its customers an amount designated as tax. Any amount designated by the organization as tax and collected from its customer as tax constitutes excess tax reimbursement, and must be refunded to the customer or paid to the Board. (Reg. 1700(b).) If you have further questions, please feel free to write again. If you do write again, please send us a hard copy of your inquiry, with a legible return address, without regard to whether you also transmit a copy of your letter by facsimile. Sincerely, Kelly W. Ching Staff Counsel KWC:cl Enclosure cc: San Jose District Administrator