Can a 501(c)(3) nonprofit sell a donated book tax-free, and does that change if the publisher later wants a cut of the profits?

Plain-English summary

The Missouri Department of Revenue ruled that a 501(c)(3) nonprofit's sales of a book about local history -- gifted to it in the deceased author's estate's memorandum of understanding with the book's for-profit publisher -- are exempt from sales tax for the first 250 copies, but taxable if the publisher later negotiates a cut of the profits on additional copies.

The nonprofit already held a Missouri sales tax exemption letter covering its charitable and educational functions under Section 144.030.2(19), RSMo, which exempts "all sales made by or to religious and charitable organizations and institutions in their religious, charitable or educational functions and activities." Because the estate gifted the first 250 books outright, with 100% of the proceeds going to the nonprofit's own charitable and educational activities, those sales fell within that exemption. But the estate and publisher planned to renegotiate their agreement for any books gifted after the first 250, likely adding a profit-sharing arrangement between the publisher and the nonprofit. The Department held that once a for-profit publisher takes a cut of the proceeds, those sales no longer qualify as being made "in" the nonprofit's charitable functions -- they become ordinary taxable retail sales, with the nonprofit responsible for collecting and remitting Missouri state and local sales tax on the full sales price.

What this means for you

Nonprofits selling donated merchandise

If your 501(c)(3) already holds a Missouri sales-and-use tax exemption letter, gifted or donated items you resell -- with 100% of proceeds going to your own charitable/educational activities -- can be sold tax-free. But watch what happens if a donor, publisher, or any other outside party later wants a percentage of the proceeds: that arrangement can convert an exempt sale into a taxable one, even if the underlying activity (selling a book about local history) looks unchanged.

Museums, historical societies, and similar cultural nonprofits

The exemption in Section 144.030.2(19), RSMo turns on whether the sale serves your charitable or educational functions and whether all the money stays with your organization. A revenue-sharing deal with a commercial partner -- even a well-intentioned one meant to honor a former officer's legacy -- breaks that "all proceeds benefit the charity" condition.

Accountants and tax professionals advising nonprofits

Track any change in a client nonprofit's revenue arrangements for merchandise sales, not just the nature of the goods sold. The same book, sold by the same organization, can flip from exempt to taxable purely because of a profit-sharing clause added to a later agreement.

Common questions

Q: Are all sales by a 501(c)(3) charity automatically tax-exempt in Missouri?
A: No. The organization needs its own Missouri sales/use tax exemption letter, and the specific sale must be within the organization's charitable, religious, or educational functions, with proceeds benefiting the organization -- not shared with an outside for-profit party.

Q: Why did the same book become taxable for later copies?
A: The first 250 copies were an outright gift with all profits going to the nonprofit. For additional copies, the publisher and the estate planned to renegotiate and likely add a profit-sharing provision, meaning a portion of the proceeds would go to the for-profit publisher rather than staying entirely within the nonprofit's charitable functions.

Q: Does this ruling apply to any nonprofit selling donated goods?
A: Not automatically. A Missouri letter ruling binds the Department only as to the requesting Applicant, only for three years, and only while the facts and law don't change. Your nonprofit would need its own exemption letter and a similar all-proceeds-to-charity fact pattern.

Citations and references

Statutes:

• Section 144.020.1(1), RSMo (imposition of sales tax on retail sellers)
• Section 144.021.1, RSMo (sellers must collect and remit tax on gross receipts)
• Section 144.030.2(19), RSMo (exemption for sales by or to religious/charitable organizations in their charitable or educational functions)

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8340

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated December 23, 2024.

The facts as presented in your letter ruling request, telephone conversation with the Director’s counsel, and Applicant’s website is summarized as follows:

Applicant is a 501(c)(3) nonprofit organization with a mission of serving the public by documenting, preserving, and interpreting the stories of people, places, events, and artifacts in a certain region in Southeast Missouri. Applicant provides these educational materials to the public and hosts cultural events featuring the history of the region. Applicant also operates a museum containing exhibits of local history. Applicant’s operations also include maintaining a research center where books, small manuscripts, genealogy resources, and photography collections featuring the region are also cataloged.   Admission to the museum and access to the educational materials and archives are provided at no cost to the general public.

Applicant is recognized by the Internal Revenue Service as a 501(c)(3) charitable organization. Applicant has been issued a Missouri sales tax exemption letter by the Department of Revenue exempting Applicant’s purchases and sales in its charitable and educational functions and activities pursuant to Section 144.030.2(19), RSMo.

One of Applicant’s former officers researched the geographic region in depth and composed a narrative capturing his adventures. The narrative features his knowledge of local history and serves as an guide to those wishing to know more about the region. Following his passing, the officer’s estate collected his writings into a published book about the region. Desiring that the officer’s legacy carry on to the benefit of Applicant, his estate has entered into a memorandum of understanding with the book’s for-profit publisher whereby the first 250 copies of the book would be gifted to Applicant. These 250 copies Applicant will sell to the public, with all the profits inuring to the benefit of Applicant to be used for its charitable functions and activities. After the 250 copies are sold, the publisher would like to renegotiate its memorandum of understanding with the estate for any additional books gifted to Applicant. That amendment would most likely include a profit-sharing provision between the publisher and Applicant for these subsequent sales.

ISSUE 1:

Are Applicant’s sales of the initial 250 books gifted by the estate exempt from sales tax under Section 144.030.2(19), RSMo?

RESPONSE 1:

Yes. Applicant’s sales of the initial 250 books gifted by the estate are exempt from Missouri sales tax.

Section 144.020.1(1), RSMo, provides: “A tax is hereby levied and imposed […] upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state.”

Section 144.021.1, RSMo, requires sellers of tangible personal property to collect and remit sales tax on the seller's gross receipts, defined as the aggregate amount of the sales price of all sales at retail.

Section 144.030.2(19), RSMo, provides an exemption from sales tax for “[a]ll sales made by or to religious and charitable organizations and institutions in their religious, charitable or educational functions and activities[.]”

Applicant is recognized by the Internal Revenue Service as a 501(c)(3) charitable   organization. Applicant has also applied for and received a sales and use tax exemption letter from the Missouri Department of Revenue that exempts from tax all sales made by Applicant that are conducted within Applicant's functions and activities. All proceeds from these book sales will contribute to paying for the operating costs of Applicant and generate additional revenue to support Applicant’s charitable and educational activities. Applicant's sales of the book therefore serve its charitable functions and activities and are exempt from sales tax under Section 144.030.2(19), RSMo.

ISSUE 2:

Are Applicant’s sales of the additional books gifted by the estate but subject to profit sharing with the publisher exempt from sales tax under Section 144.030.2(19), RSMo?

RESPONSE 2:

No. Applicant’s sales of the additional books gifted by the estate but subject to profit sharing with the publisher are not exempt from sales tax under Section 144.030.2(19), RSMo. If Applicant makes such sales, the gross receipts from such sales are subject to Missouri state and local sales tax and Applicant should collect and remit tax on the full sales price.

The sale of books whereby the publisher receives a share of the profits are taxable sales at retail because such sales would not qualify as sales made within Applicant’s charitable and educational activities. Under this scenario, the for-profit publisher receives a portion of the gross receipts which disqualifies such sales as exempt under Section 144.030.2(19), RSMo.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.   If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.   For this reason, the interpretation set forth above should be reviewed on a regular basis.   Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

S hould additional information be needed, please contact Senior Counsel Benjamin C. Slawson, General Counsel’s Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Trish Vincent