Does a nonprofit service club have to collect New York sales tax on candy it sells to fund charitable work?

Plain-English summary

The West Seneca Lions began selling candy mints at various locations around West Seneca, with the proceeds going to a Project Fund used entirely to help the blind, disabled and needy. The club asked whether it must collect sales tax on those sales.

The Department held the club must collect the tax.

• Exempt organizations get a break — but you have to be one. Section 1116(a)(4) exempts organizations organized and operated exclusively for religious, charitable, scientific, public-safety-testing, literary or educational purposes. A qualifying exempt organization doesn't have to collect sales tax on its sales unless they're made through a shop, store or restaurant it operates.
• Nonprofit status alone isn't enough. "An organization is not exempt from tax under section 1116(a)(4) merely because it is operated as a nonprofit organization" (20 NYCRR 529.7(a)(2)). The club had not qualified as a § 1116(a)(4) exempt organization.
• So the club must collect the tax. It is required to collect sales tax on its sales of tangible personal property, including candy mints (candy is taxable; Tax Law § 1115(a)(1)).
• There's a path to exemption. An organization that's exempt from federal income tax but doesn't itself qualify under § 1116(a)(4)–(6) may set up a separate entity organized exclusively for charitable (etc.) purposes. If that entity meets the 20 NYCRR 529.7 requirements and its application for exemption is approved by the Technical Services Bureau, its sales — other than through a shop, store or restaurant — would be exempt.

What this means for you

"We're a nonprofit and it's all for charity" doesn't make your sales tax-free. New York's exemption turns on being a recognized exempt organization under § 1116(a)(4), not on your nonprofit status or the good cause your proceeds fund. Until you actually hold that status, your fundraising sales of merchandise are taxable and you must collect the tax.

Get the exemption on paper before you sell. The exemption requires meeting the organizational and operational tests and getting the Department's approval. A club can obtain it directly if it qualifies, or route charitable fundraising through a separate entity built and approved for exclusively charitable purposes.

Even exempt sellers pay tax at a shop, store or restaurant. The § 1116 exemption for an org's own sales doesn't extend to sales made through a shop, store or restaurant it operates — those stay taxable. A candy-selling booth or ongoing retail operation can cross that line.

Common questions

Q: We're a registered nonprofit — do we still charge sales tax on fundraiser merchandise?
A: Yes, unless you're a recognized exempt organization under § 1116(a)(4) (or an approved separate charitable entity). Nonprofit status by itself doesn't exempt your sales; the Lions had to collect tax on their candy.

Q: Isn't candy exempt as food?
A: No. Candy and confectionery are taxable under New York law (§ 1115(a)(1)), so selling candy mints is a taxable sale of tangible personal property.

Q: How can our group sell tax-free for charity?
A: Qualify as an exempt organization, or form a separate entity organized exclusively for charitable purposes, meet the 20 NYCRR 529.7 requirements, and get the Department's approval. Then its sales — except through a shop, store or restaurant — can be exempt.

Citations and references

Statutes and regulation:

• Tax Law § 1116(a)(4) — exemption for organizations organized and operated exclusively for religious, charitable, scientific, public-safety-testing, literary or educational purposes
• Tax Law § 1115(a)(1) — candy and confectionery are taxable (not exempt food)
• 20 NYCRR 529.7 — organizational and operational requirements for exemption and the application/approval process; nonprofit status alone doesn't confer exemption (529.7(a)(2))

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_14s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(14)S
Sales Tax
March 24, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S851029B

On October 29, 1985, a Petition for Advisory Opinion was received from the West Seneca
Lions, 22 Freedom Drive, West Seneca, New York 14224.
The issue raised is whether the West Seneca Lions are required to collect sales tax on certain
sales made by them.
Petitioner states that on August 1, 1985, it began to distribute candy mints for sale in various
locations throughout West Seneca. The proceeds from such sales will be deposited in the club's
"Project Fund" which is used entirely to help the blind, disabled and needy in West Seneca.
Section 1116(a)(4) of the Tax Law exempts from the sales and use taxes, "any corporation,
association, trust, or community chest, fund or foundation, organized and operated exclusively for
religious, charitable, scientific, testing for public safety, literary or educational purposes ...."
If an organization qualifies as an exempt organization pursuant to the provisions of section
1116(a)(4) of the Tax Law, it is not required to collect sales tax on its sales unless such sales are
made by a shop, store or restaurant operated by such exempt organization. Petitioner does not
qualify as an exempt organization under section 1116(a)(4) of the Tax Law even though it is
operated on a nonprofit basis. An organization is not exempt from tax under section 1116(a)(4)
merely because it is operated as a nonprofit organization. 20 NYCRR 529.7(a)(2).
Accordingly, Petitioner is required to collect sales tax on its sales of tangible personal
property, including candy mints. (see: Tax Law section 1115 (a)(1)).
However, an organization that is exempt from Federal income taxes but does not qualify for
exemption from sales tax under paragraphs (4), (5) or (6) of Section 1116(a) of the Tax Law, may
establish a separate entity exclusively for religious, charitable, scientific, literary, or educational
purposes. If such separate entity meets the organizational and operational requirements of regulation

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86(14)S
Sales Tax
March 24, 1986

section 529.7 and if its application for exemption is approved by the Technical Services Bureau as
provided in regulation section 529.7(f), then its sales, other than sales by a shop, store or restaurant
operated by the separate entity, will be exempt from sales tax.

DATED: March 24, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.