Does a not-for-profit organization owe Illinois sales tax or use tax on food it buys and serves at fundraisers, member dinners, or donation-based events?

Plain-English summary

A not-for-profit organization asked the Illinois Department of Revenue two related questions: (1) at a fundraiser where no food tickets are sold and only donations are accepted, does paying use tax on the food purchase satisfy the group's tax obligation, or must it also remit use tax separately; and (2) at its regular member dinners held before meetings (no tickets, no separate charge), does paying use tax on the food purchase satisfy its obligation?

The Department explained the general framework first: Illinois "sales tax" is really two taxes working together — Retailers' Occupation Tax on sellers, and Use Tax on purchasers/end users (35 ILCS 120/2; 35 ILCS 105/3). Being a federally recognized 501(c)(3) nonprofit does not automatically make an organization tax-exempt in Illinois; it must apply for and receive an exemption identification number (an "E number") from the Department (35 ILCS 105/3-5(4); 86 Ill. Adm. Code 130.2007). Even organizations that hold an E number are still generally subject to Retailers' Occupation Tax on their own sales, subject to three narrow exceptions: sales to members, noncompetitive sales, and occasional dinners/socials/similar activities held no more than twice a year (86 Ill. Adm. Code 130.2005(a)(2)-(4)).

Applying that framework to the organization's specific facts, the Department concluded that where the organization simply pays use tax on the food at the time of purchase, and does not resell the food (no tickets, donations only or no charge at all), there is no separate taxable sale of the food — the organization is the "end user," and paying use tax when it buys the food satisfies its tax obligation. This holds for both the fundraiser scenario (donations only, no tickets) and the recurring member-dinner scenario (food provided to members before meetings, no charge).

What this means for you

Not-for-profit organizations

If your organization buys food and gives it away or accepts only unconditional donations (not tied to receiving the meal) rather than selling tickets, you are the end user of that food. Pay Illinois use tax on the food when you buy it, and that use tax payment satisfies your tax obligation — you do not need to separately remit use tax on top of what you already paid, and you should not issue a Certificate of Resale to your supplier in that situation.

Organizations that sell food tickets or run recurring sales

If you sell tickets for the meal, or otherwise regularly sell food (like a Little League concession stand or a church thrift shop), that is a taxable retail sale. You must register as a retailer, collect and remit Retailers' Occupation Tax on those sales, and you may give suppliers a Certificate of Resale for the ingredients you buy for resale (86 Ill. Adm. Code 130.1405). Simply calling something a "fundraiser" does not exempt it.

Organizations considering applying for an E number

Federal 501(c)(3) status alone does not exempt your purchases from Illinois Use Tax. You must apply to the Department and be determined to be exclusively religious, educational, or charitable to receive an E number (86 Ill. Adm. Code 130.2007). Even with an E number, your own sales are still generally taxable except for the three narrow exceptions (sales to members, noncompetitive sales, and occasional dinners/socials limited to twice per calendar year).

Accountants and tax professionals

The key distinction in this GIL is between an organization acting as an end user (paying use tax on food it purchases and then gives away or accepts only unconditional donations for) versus acting as a retailer (selling tickets or otherwise selling the food, which triggers Retailers' Occupation Tax collection obligations). Track whether tickets are sold, whether "donations" are conditioned on receiving food, and whether the client holds an E number, since each of those facts changes the analysis under 86 Ill. Adm. Code 130.2005 and 130.2007.

Common questions

Q: Our nonprofit holds a fundraiser and only accepts donations for food — no tickets. Do we owe more than the tax we already paid when we bought the food?
A: No. If partaking in the meal is not conditioned on making a donation, there is no taxable sale of the food; your organization is the end user, and paying Illinois use tax on the food when you purchased it satisfies your tax obligation.

Q: We hold monthly member dinners before meetings and don't charge for the meal. Do we owe use tax beyond what we paid on the ingredients?
A: No. When an organization provides dinner at no charge and without accepting donations, it is the end user of the food. Paying use tax at the time of purchase satisfies the tax obligation for that food.

Q: Does being a 501(c)(3) nonprofit automatically exempt us from Illinois sales and use tax?
A: No. Federal tax-exempt status under Internal Revenue Code Section 501(c)(3) does not automatically exempt an organization under Illinois law. The organization must apply for and receive an exemption identification number ("E number") from the Department.

Q: If we have an E number, are all of our sales tax-exempt?
A: No. Even organizations with an E number are generally subject to Retailers' Occupation Tax on their own sales of tangible personal property, with three limited exceptions: sales to members, noncompetitive sales, and occasional dinners/socials (limited to two qualifying events per calendar year).

Q: What counts as an "occasional dinner" exemption, and what doesn't?
A: Occasional dinners, socials, ice cream socials, fun fairs, carnivals, rummage sales, bazaars, and bake sales held by exclusively charitable, religious, or educational organizations are exempt if held no more than twice per calendar year, whether or not open to the public. The exemption does not extend to occasional sales of items like hats, greeting cards, cookbooks, or flag kits, since those are not "dinners, socials or similar activities."

Citations and references

• 35 ILCS 120/2; 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax)
• 35 ILCS 105/3; 86 Ill. Adm. Code 150.101 (Use Tax)
• 35 ILCS 105/3-45; 86 Ill. Adm. Code 150.401, 150.701(a) (Use Tax collection and self-assessment)
• 35 ILCS 105/2, 3-5(4) (E number required for exemption despite 501(c)(3) status)
• 86 Ill. Adm. Code 130.2007 (E number application and effect)
• 86 Ill. Adm. Code 150.325 (E number and exemption from Use Tax on qualifying purchases)
• 86 Ill. Adm. Code 130.2005(a)(2)-(4) (limited exceptions to Retailers' Occupation Tax for E-number holders: member sales, noncompetitive sales, occasional dinners/socials)
• 86 Ill. Adm. Code 130.1405 (Certificates of Resale for organizations with ongoing sales activity)
• 2 Ill. Adm. Code 1200.120 (GILs are not binding on the Department)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/ST-23-0004-GIL.pdf

Original ruling text

ST-23-0004-GIL 02/14/2023 NOT-FOR-PROFIT ORGANIZATIONS:
This letter discusses purchases and sales by not-for-profit organizations. See 35
ILCS 105/3-5(4), 86 Ill. Adm. Code 130.2005, and 86 Ill. Adm. Code 130.2007.
(This is a GIL).
February 14, 2023

COMPANY
ADDRESS
Dear Ms. XXX:
This letter is in response to your letter dated September 2, 2022, 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:
To Whom It May Concern:
We are writing in regard to a sales and use tax question that we have. We
are a not-for-profit organization that is subject to sales tax. I called and
talked to someone at IDOR regarding our question, but the person I spoke
with (and the supervisor of that person) were unable to answer the
question. It was suggested that I contact you.
When we have fundraising events, we normally don’t pay sales tax on our
food purchases. We collect the sales tax from people buying food tickets
and then submit the tax with our sales tax return. Occasionally, we will
have fundraisers involving food but no food tickets are sold, only
donations are accepted. Our question is this:
If we have a fundraising event where no food tickets are sold for the
food served (only donations are accepted), and we pay the sales
tax on the food at the time of purchase (assuming the 1% grocery

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February 14, 2023
tax is in effect), is our sales tax obligation met with the paying of the
1% tax paid or are we required to pay use tax on the cost of the
food purchases?
Another situation with a similar question is this:
Our organization conducts monthly meetings, which our members
attend, in order to discuss various issues concerning our
organization. We cook dinner for our members to eat prior to the
meetings. If we pay the sales tax on the food purchases (assuming
the 1% tax is in effect), have we satisfied our sales tax obligation
relating to this food, or is it necessary to remit the use tax on the
cost of the food purchased?
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged
in this State in the business of selling tangible personal property to purchasers for use
or consumption. 35 ILCS 120/2; 86 Ill. Adm. Code 130.101. In Illinois, 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. 35 ILCS 105/3; 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as “sales” tax in Illinois. If
the purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at
the time of purchase. 35 ILCS 105/3-45; 86 Ill. Adm. Code 150.401. The retailers are
then allowed to retain the amount of Use Tax paid to reimburse themselves for their
Retailers' Occupation Tax liability incurred on those sales. 86 Ill. Adm. Code
150.130(b). If the purchases occur outside Illinois, purchasers must self-assess their
Use Tax liability and remit it directly to the Department. See 35 ILCS 105/3-45; 86 Ill.
Adm. Code 150.701(a).
Organizations that are recognized as non-profit under Internal Revenue Code
Section 501(c)(3), are not necessarily exempt organizations pursuant to Illinois tax law.
See 35 ILCS 105/2, 3-5(4). Such organizations must obtain an exemption identification
number (an “E number”) from the Department to qualify. 35 ILCS 105/3-5(4); 86 Ill.
Adm. Code 130.2007.
Organizations that make application to the Department and are determined to be
exclusively religious, educational, or charitable, receive an exemption identification
number (an "E" number). See 86 Ill. Adm. Code 130.2007. The E number evidences
that the State of Illinois recognizes that the organization qualifies as exempt from
incurring Use Tax when purchasing tangible personal property in furtherance of its
organizational purpose. 86 Ill. Adm. Code 150.325. If an organization does not have an
E number, then its purchases from suppliers are subject to tax. 86 Ill. Adm. Code
130.2007(a). Please note that only sales to the organization holding the E number are
exempt, not sales to individual members of the organization. See 35 ILCS 105/3-5(4).

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February 14, 2023
It is presumed, based on the facts in this letter, that your organization has not
been issued an E number by the Department. Please note, however, for general
information purposes, that even organizations that have received an E number are, as a
general matter, subject to Retailers’ Occupation Tax upon their own sales of tangible
personal property. There are three limited exceptions where organizations that have
been issued an E number are authorized to engage in a restricted amount of retail
selling activity without incurring Retailers' Occupation Tax liability. 86 Ill. Adm. Code
130.2005. The limited exceptions available to not-for-profit organizations described in
86 Ill. Adm. Code 130.2005 include:
(1) Sales to Members, 86 Ill. Adm. Code 130.2005(a)(2);
(2) Noncompetitive Sales, 86 Ill. Adm. Code 130.2005(a)(3); and
(3) Occasional Dinners and Similar Activities, 86 Ill. Adm. Code 130.2005(a)(4).
With respect to the third exception, occasional dinners, socials or other similar
activities which are conducted by exclusively charitable, religious or educational
organizations or institutions are not taxable, whether or not such activities are open to
the public. This exemption extends to occasional dinners, ice cream socials, fun fairs,
carnivals, rummage sales, bazaars, bake sales and the like, when conducted by
exclusively charitable, religious or educational organizations or institutions, whether the
items that are sold are purchased or donated for the purposes of the sale, and even if
the sale is open to the public. 86 Ill. Adm. Code 130.2005(a)(4)(A).
For the purposes of this exemption, "occasional" means not more than twice in
any calendar year. Where more than two events are held in any calendar year, the
organization or institution may select which two events held within that year will be
considered exempt. Once the organization or institution has made the selections, the
selections cannot be changed. All other events in that year will be considered taxable.
86 Ill. Adm. Code 130.2005(a)(4)(B).
This exemption does not extend to "occasional" sales, by exclusively charitable,
religious or educational organizations or institutions, of hats, greeting cards, cookbooks,
flag kits and other similar items because these are not "occasional dinners, socials or
similar activities" within the meaning of the Act, and the selling of these kinds of items at
retail even on an occasional basis does generally place the selling organization in
substantial competition with business establishments.
86 Ill. Adm. Code
130.2005(a)(4)(C).
Please note, if the organization engages in ongoing selling activities (such as
Little League concession stands or sales of items in a thrift shop run by a church), it
must register with the Department as a retailer and provide its suppliers with Certificates
of Resale for the items it purchases for resale. See 86 Ill. Adm. Code 130.1405;

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February 14, 2023
2005(a). In order for a sale for resale to qualify for the resale exemption and relieve the
supplier of the retailers' occupation tax, the supplier must keep on file a valid Certificate
of Resale with a valid exemption number. See 86 Ill. Adm. Code 130.1405, 2005(r).
An organization may provide meals and accept donations that are not related to
the cost of the meal with the understanding that partaking in the meal is not conditioned
on the making of a donation. An organization providing such a meal is the end user of
the ingredients that go into the meal it serves and must pay Illinois use tax on those
ingredients. An organization may not give its suppliers a certificate of resale in this
situation. If this procedure is followed, then there is no sale of tangible personal
property (the meal) and donations received are not subject to Illinois retailers’
occupation tax.
Similarly, when an organization provides dinner at no charge and without
accepting donations, the organization is considered the end user. As an end user, an
organization must pay the use tax when purchasing food for the dinner. When an
organization pays use tax at the time of the food purchase, its tax obligation is satisfied.
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,

Katarzyna Kowalska
Associate Counsel

KK:dlb