Can a nonprofit school with an Illinois sales-tax E-number sell household goods to its members for fundraising without collecting and remitting Retailers' Occupation Tax?

Subject

Exempt Organizations

Plain-English summary

A nonprofit private school (grades 3-12) asked the Illinois Department of Revenue to confirm that its fundraising sales to "members of a private school charity" were exempt from Retailers' Occupation Tax. The school held a sales-tax exemption identification number (an "E-number") as a registered public charity under IRC sections 509(a)(1) and 170(b)(1)(vi), and it described itself as an integrated auxiliary of a church that also holds 501(c)(3) status. Its fundraising activity consisted of buying household goods — "food stuffs, personal care items, 'gift' type items, etc." — in bulk and reselling them to members of its community, using unpaid volunteer labor, with all profits retained by the school.

The Department first noted that it had already decided, before this letter issued, not to grant a Private Letter Ruling on the request, and it responded instead with this non-binding General Information Letter (GIL). See 2 Ill. Adm. Code 1200.110(a)(4) and 1200.120.

On the substance, the Department explained the general rules: an organization with an E-number may sell to its own members without incurring Retailers' Occupation Tax, but only when the sales are made "primarily for the purposes of the selling organization" (86 Ill. Adm. Code 130.2005(a)(2)), and separately, an E-number holder may hold up to two tax-free fundraisers a year (86 Ill. Adm. Code 130.2005(a)(2) through (a)(4)). The Department also explained a separate school-specific rule, 86 Ill. Adm. Code 130.2009, which exempts fundraising sales for the benefit of a school when the items sold were donated to or prepared by the fundraising group — but that exemption does NOT apply when the fundraising group buys goods from a supplier for resale and the supplier profits from that sale.

Applying these rules to the facts described, the Department did not give the school a clean "yes." Instead, it observed that if an organization sells goods (such as household items, food stuffs, personal-care items, and gift-type items) that would place it "in competition with other retailers," the sales generally would NOT be considered primarily for the purpose of the selling organization. The Department then stated directly: "It appears that you are making these types of sales" — referring to the school's practice of buying ready-to-sell goods from a supplier (who profits from that sale) for resale to members, which the Department analogized to a parent-teacher association selling wrapping paper, holiday goods, or candy from a for-profit supplier. That kind of sale falls outside both the sales-to-members exemption and the donated/prepared-goods school-fundraising exemption.

What this means for you

Nonprofit and religious organizations holding an E-number

Having an E-number does not make all of an organization's sales tax-free. It exempts the organization's own purchases from Use Tax, and it allows a limited category of tax-free retail selling: sales made "primarily for the purposes of the selling organization" to its own members, plus up to two fundraisers a year (86 Ill. Adm. Code 130.2005(a)(2)-(a)(4)). Buying general merchandise in bulk from a for-profit supplier and reselling it to members or the public — even to raise funds for a good cause — can look more like ordinary retail competition than an exempt "member" sale, and the Department flagged exactly that concern in this letter.

Schools and school-affiliated fundraising groups

A separate exemption exists for fundraising sales benefiting a school (86 Ill. Adm. Code 130.2009), but the Department was explicit that this exemption depends on how the goods were obtained: items donated to or prepared by the fundraising group (bake sales, donated-clothing sales) can be sold tax-free, but items purchased from a supplier for resale — where the supplier makes a profit from that sale to the fundraising group — fall outside the exemption, even if 100% of the proceeds ultimately benefit the school.

Anyone relying on this letter

This is a General Information Letter, not a Private Letter Ruling, and the Department expressly declined to issue a PLR on this request. A GIL "is not a statement of Department policy and is not binding on the Department" (86 Ill. Adm. Code 1200.120(b) and (c)). It also does not squarely resolve the taxpayer's specific fact pattern — the Department described the general rules and noted that the school's sales "appear" to fall outside the exemption, but it did not issue a definitive, binding conclusion. An organization wanting a binding answer on its own facts would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: Does having a sales-tax E-number mean an organization never has to collect sales tax on anything it sells?
A: No. An E-number mainly exempts the organization's own purchases from Use Tax. It also permits a limited category of tax-free retail selling — sales to the organization's own members primarily for the organization's purposes, plus up to two fundraisers a year — but ongoing retail selling generally still requires registering as a retailer and collecting Retailers' Occupation Tax.

Q: Did the Department confirm that this school's fundraising sales were tax-exempt?
A: Not clearly. The Department described the sales-to-members exemption and the school-fundraising exemption, then stated that if an organization sells goods that would place it in competition with other retailers, the sales generally are not primarily for the organization's own purposes — and added, "It appears that you are making these types of sales."

Q: Why did buying goods from a supplier for resale make a difference?
A: The school-fundraising exemption under 86 Ill. Adm. Code 130.2009 applies to items donated to or prepared by the fundraising group, but not to items purchased from a supplier who profits from selling those items to the fundraising group for resale — the letter gives the example of a parent-teacher association buying wrapping paper or candy bars from a supplier to resell.

Q: What sales would qualify for the "two fundraisers a year" exemption?
A: The Department noted that an organization with an E-number can hold up to two fundraisers a year selling to the public without incurring Retailers' Occupation Tax liability, citing 86 Ill. Adm. Code 130.2005(a)(2) through (a)(4). The letter did not analyze whether the school's ongoing sales program (as opposed to two discrete annual events) would satisfy this limit.

Q: Why didn't the Department just issue a Private Letter Ruling instead?
A: The letter states that the Department "recently met and determined that it would decline to issue a Private Letter Ruling in response to your request," and instead responded with this non-binding GIL "based on the limited information" provided.

Q: Is this letter binding on the Illinois Department of Revenue?
A: No. It is a General Information Letter, which by its own terms "is not a statement of Department policy and is not binding on the Department" (86 Ill. Adm. Code 1200.120(b) and (c)). A taxpayer seeking a binding answer on its specific facts would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0022-gil.pdf

Original ruling text

ST 18-0022-GIL 09/13/2018 EXEMPT ORGANIZATIONS
Exclusively religious, educational, or charitable organizations that have been given E-numbers
by the Department are allowed to engage in a very limited amount of retail selling without
incurring Retailers' Occupation Tax liability. See 86 Ill. Adm. Code 130.2005. (This is a GIL.)

September 13, 2108

Dear Xxxxx:
This letter is in response to your letter dated May 2, 2018, in which you requested information.
The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or
rule to a particular fact situation. A PLR is binding on the Department, but only as to the taxpayer
who is the subject of the request for ruling and only to the extent the facts recited in the PLR are
correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in the
Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information Letter
(“GIL”) is to direct taxpayers to Department regulations or other sources of information regarding the
topic about which they have inquired. A GIL is not a statement of Department policy and is not
binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website at
www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to your
inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
SCHOOL is requesting a ruling on the exemption of collecting and remitting sales tax,
for sales made to members of a private school charity, which is a nonprofit service
organization.
A. STATEMENT OF FACTS

1. SCHOOL, is a registered public charity under sections 509(a)(1) and 170(b)(1)(vi) of
   the Internal Revenue code (FEIN #####), assigned Sales Tax Exemption E#####,
   located at ADDRESS.
2. We are a nonprofit private school, providing education to grades 3-12.
3. We conduct fund raising activities involving sales of products to members of our
   community. The products are primarily household goods including: food stuffs,
   personal care items, “gift” type items, etc… These products are purchased in bulk
   and resold to our members. The work involved in these activities is conducted by
   unpaid volunteers. All profits from these sales are retained as income to the
   Corporation.

ST 18-022-GIL
Page 2

4. SCHOOL is an integrated auxiliary of CHURCH, in CITY know [sic] as; CHARITY., a
   registered 501(c)(3) public religious charity (FEIN ######).
   B. RULING REQUESTED
   We are requesting confirmation that the sales of products to our members, for the
   purpose of fundraising, are exempt of collecting and remitting sales tax.
   C. STATEMENT OF LAW
   We believe the above requested ruling to be in accordance with the law, based on the
   following excerpts from “Illinois Department of Revenue Regulations ǀ Title 86: Revenue
   ǀ Part 130 Retailer’s Occupation Tax ǀ Section 130.2005”.
5. 130.2005, a, 1, A – “…the exemption is not available unless the selling organization
   or institution does qualify as an “exclusively” charitable, religious or educational
   organization or institution.”
6. 130.2005, a, 2, A – “…sales by such organization are not taxable if they are made to
   the organization’s members... …primarily for the purposes of the selling
   organization.”
   D. ANALYSIS
7. We are an “exclusively” charitable, educational organization.
   2.

Sales are made “to the organization members”, “primarily for the purposes of the
selling organization”.
E. CONCLUSION

Based on the above excerpts and statements, we believe we qualify for this exemption.
F. PROCEDURAL MATTERS
a.

This issue has not been previously raised at any time by us or any related
entity.

b.

This issue has not had a previous ruling which was raised by us, any
related entity of predecessor.

c.

This issue has not been previously raised and subsequently withdrawn by
us or any related entity.

d.

This issue and/or similar issues have not been previously raised by us or
any related entity.

e.

We are not submitting any other ruling requests at this time.

ST 18-022-GIL
Page 3

f.

On (2) separate occasions we phoned the Illinois Department of Revenue
for comments:
i.

December 4, 2017 – spoke to NAME 1 # ####
1.
We called to review how IL sales tax laws would apply to our
fund-raising activities. She brought IL Publication 130.2005
to our attention and reviewed our activities along with
sections of this law. Her conclusion was that the sales we
make, to our members, for fund-raising, are exempt from
collecting and remitting sales tax.

ii.

January 18, 2018 – spoke to NAME 2 # #####
1.
We called to get the above-mentioned comments recorded
in writing. He re-reviewed our situation, agreed with the
previous comments and directed us to request a letter ruling,
if we wanted this in writing.

g.

We are not aware of any contrary authorities to this request.

h.

We do not require a conference on this issue.

i.

Please mail your reply to this request, do not send via fax.

j.

We are not submitting any other requests, for any other issues, at this
time.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). The Department recently met and determined that it would decline to issue a
Private Letter Ruling in response to your request. Based on the limited information you provided in
your letter, we hope the following General Information Letter will be helpful in addressing your
questions.
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in the
business of selling tangible personal property at retail to purchasers for use or consumption. See 86
Ill. Adm. Code 130.101. Use Tax is imposed on the privilege of using, in this State, any kind of
tangible personal property that is purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as “sales tax” in Illinois.
Organizations that make application to the Department of Revenue and are determined to be
exclusively religious, educational, or charitable, receive an exemption identification number (an "Enumber”). See 86 Ill. Adm. Code 130.2007. This number evidences that the Department recognizes
the organizations as exempt from incurring Use Tax when purchasing tangible personal property in

ST 18-022-GIL
Page 4

furtherance of their organizational purposes. If an organization does not have an E-number, then its
purchases are subject to tax.
Organizations that have E-numbers are also allowed to engage in a very limited amount of
retail selling without incurring Retailers' Occupation Tax liability. These limited amounts of selling are
described in 86 Ill. Adm. Code 130.2005(a)(2) through (a)(4). An exempt organization may engage in
sales to members, noncompetitive sales, and certain occasional dinners and similar activities (two
fundraisers a year) without incurring Retailers' Occupation Tax liability. Organizations can use their Enumbers to purchase items for such limited exempt sales. However, if organizations engage in
ongoing selling activities (such as Little League concession stands or sales of items in a thrift shop
run by a church), they must also register with the Department as retailers, file returns and remit tax.
For these types of ongoing sales, the organizations would provide their suppliers with
Certificates of Resale for the items they purchase to resell and remit Retailers' Occupation Tax on
their gross receipts from sales. See 86 Ill. Adm. Code 130.1405, which describes the requirements
for validly executed Certificates of Resale.
The “sales to members” exemption found at 86 Ill. Adm. Code 130.2005(a)(2) is limited to
sales by an exclusively religious, educational or charitable organization that are made primarily for the
purposes of the selling organization to its members, or students in the case of a school. Please note,
the population to which sales are made is limited to persons specifically associated with that exempt
organization and must be for the primary purpose of the selling organization. Whether the sales are
for the primary purpose of the selling organization depends on the nature of the tangible personal
property sold and how that tangible personal property is used. If an organization sells tangible
personal property (e.g., household goods such as food stuffs, personal care items and gift-type items)
that would place them in competition with other retailers, the sales generally would not be primarily for
the purpose of the selling organization.
Under the Department’s regulation “Personal Property Purchased Through Certain Fundraising
Events for the Benefit of Certain Schools,” 86 Ill. Adm. Code 130.2009, the Retailers’ Occupation Tax
does not apply to the sale of tangible personal property purchased through fundraising events for the
benefit of schools or school districts if the events are sponsored by an entity recognized by the school
district that consists primarily of volunteers and includes parents and teachers of the school children.
However, the above-stated exemption does not apply to situations in which the fundraising
group purchases items from a supplier who sells the items to the fundraising group for the purpose of
resale and that profits from the sale to the fundraising group. For example, a parent-teacher
association’s sale of wrapping paper, holiday goods, and ready-to-sell food products (such as candy
bars, nuts, or frozen pizzas) that are purchased from a supplier for purposes of resale, where the
supplier makes a profit from the sale to the parent-teacher association, would fall outside the
restriction that the items be prepared by or donated to the parent-teacher association. It appears that
you are making these types of sales.
In contrast, if the items to be sold are donated to the school, then pursuant to 86 Ill. Adm. Code
130.2009(c), the fundraising group, sponsored by an entity recognized by the school district, may
engage in tax-free selling under the Act. For example, these types of sales include bake sales or
bazaars selling items that are prepared by or donated to the fundraising group or sales of donated
clothes or other items by a fundraising group, provided that the funds go solely to benefit the school.

ST 18-022-GIL
Page 5

Notwithstanding that some of an organization’s ongoing sales are taxable, such organization
may engage in selling tangible personal property at retail to the public at two fundraisers a year
without incurring Retailers’ Occupation Tax liability. See 86 Ill. Adm. Code 130.2005(a)(2) through
(a)(4).
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:bkl