Does an individual who pays sales tax on an item, then donates it to a nonprofit's charity auction where it resells for more than $5,000, get taxed twice — and does the nonprofit's $5,000 one-day-sale limit apply to every 501(c) organization or just colleges?

Plain-English summary

A requester raised two fundraising-related sales tax questions for nonprofit organizations.

1. Double taxation on donated auction items. The scenario: an individual buys an item from a retail store and pays sales tax, then donates the item to an exempt organization, which sells it at a fundraising auction for over $5,000 — sometimes back to the original donor. Does the donor pay sales tax twice?

The Comptroller's answer: an individual can avoid this altogether by giving the retailer an exemption certificate at the time of purchase, under Tax Code § 151.155(e), for an item intended for donation to an exempt organization — but that exemption is lost if the individual uses the item before donating it. Once properly donated, the item can be resold tax-free by the nonprofit regardless of the sales price to any purchaser other than the donor. And if tax was already paid before the donation was arranged, the donor has three ways to recover it: issue an exemption certificate to the vendor and request a refund of the tax paid, take a credit on an amended return (if permitted to report tax), or request a refund directly from the Comptroller's office.

2. Scope of the $5,000 one-day-sale limitation. Publication 96-122 says 501(c)(3)/(4)/(8)/(10)/(19) organizations may hold two one-day tax-free sales or auctions per year, with each day's sales not subject to collection. The requester read the publication's structure — which discussed a $5,000 limit specifically in a paragraph about college/university organizations — as implying the $5,000 cap applied only to colleges and universities, with other organizations facing no cap on high-value one-day-sale items.

The Comptroller corrected this reading: the $5,000 limitation applies to ALL 501(c) organizations eligible for the two one-day tax-free sales, not just colleges and universities, per Tax Code § 151.310(c) and Rule 3.322(g)(2). The Comptroller acknowledged the publication's ambiguity and committed to clarifying it in the next revision, while noting the statute and rule themselves are clear even where the guidance publication was not.

What this means for you

Donors giving items to charity auctions

Get an exemption certificate to your retailer before buying an item you intend to donate — that avoids the tax at the point of purchase entirely. If you've already paid tax, you still have three avenues to recover it (vendor refund via certificate, amended-return credit, or direct Comptroller refund request).

Nonprofits running one-day tax-free sales and auctions

The $5,000-per-item limit on your two annual one-day tax-free sales applies to your organization too, even if you're not a college or university — don't rely on a narrow reading of Publication 96-122's paragraph structure; the underlying statute (§ 151.310(c)) and rule (3.322(g)(2)) control.

Accountants and tax professionals advising nonprofits

This letter is useful evidence that the Comptroller's own public guidance publication was, by its own admission, ambiguous on the scope of the $5,000 limitation — worth citing if a client relied on a narrower reading in good faith, though the letter notes the statute/rule themselves foreclose any broader remedy.

Common questions

Q: How can a donor avoid paying sales tax twice on an item given to a charity auction?
A: Issue an exemption certificate to the retailer at the time of purchase, for the item's intended donation — but don't use the item first, or the exemption is lost.

Q: What if the donor already paid tax before deciding to donate?
A: The donor can recover it via an exemption certificate plus refund request to the vendor, an amended-return credit, or a direct refund request to the Comptroller.

Q: Does the $5,000 one-day-sale limit apply only to colleges and universities?
A: No — per this letter, it applies to all 501(c)(3)/(4)/(8)/(10)/(19) organizations eligible for the two one-day tax-free sales, per Tax Code § 151.310(c) and Rule 3.322(g)(2).

Q: Can any donor or nonprofit rely on this exact answer?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own donation and sale facts with a tax professional.

Citations and references

Statutes, rules, and publications:

• Tex. Tax Code § 151.155(e) (exemption for items purchased for donation)
• Tex. Tax Code § 151.310(c) ($5,000 one-day-sale limitation)
• 34 Tex. Admin. Code § 3.322(g)(2) ($5,000 limitation)
• Comptroller Publication 96-122, "Texas State Tax Exemptions for Nonprofit Organizations" (revised June 2000)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200010832L

Original ruling text

October 20, 2000

From: Gilbert Zamora

To: **

Subject: Re: Sales taxes and Non-Profit Organizations

I am responding to your e-mail inquiry concerning the taxability concerning
fundraising activities conducted by Non-Profit organizations. You have two
major areas of concern:

1) Items which are purchased by individuals and then donated to exempt
organizations for sale at auction fundraisers - The scenario is as follows: An
item is originally purchased from a retail store and the purchaser (who is an
individual, not an exempt organization) pays sales tax at the time of purchase.
This purchaser then donates the item to an exempt organization that then sells
it at a fundraising auction for over $5,000 to the original purchaser. Is the
purchaser again to pay sales tax on the purchase a second time?

If the item's fair market price (and the price paid by the donor to the retail
store prior to donation) exceeds $5,000 it seems to me that this is an unfair
double taxation to the donor/purchaser. If the donor/purchaser acquired the
item from a wholesaler with the intent to resell, the wholesale purchase is
exempt from the sales tax. Is there some method of rebating this double
taxation when there is charitable donative intent?

Response: An exemption certificate may be given by an individual for the
purchase of an item to be donated to an exempt organization. If the individual
uses the item before donating it, the exemption is lost. Texas Tax Code
151.155(e). The donated item may be sold tax free regardless of the sales
price to any purchaser other than the donor.

The donor can recover the tax paid on the donated item by issuing an exemption
certificate to the vendor and requesting a refund of the tax paid.
Alternatively, if permitted to report tax, the donor can take a credit on an
amended return for report period in which the tax on the donated items was
paid. A third option is to request a refund directly from the comptroller's
office.

2) According to Tax Publication 96-122 (revised June, 2000), "Texas State Tax
Exemptions for Nonprofit Organizations", organizations who possess IRS
exemption under IRC Sections 501(c)(3), (c)(4), (c)(8), (c)(10), or (c)(19) may
hold 2 one-day sales or auctions. Each day's sales are not subject to sales
tax collection.

In the following paragraph, the publication describes types of organizations
which are not authorized to hold two one-day sales (youth athletic
organizations and such). In the final paragraph in the subject header
"Auctions, Rummage Sales, and Other Fund Raisers", the publication discusses
College or university organizations and the limitations they are subject to.
Included in this paragraph is a $5,000 limit on the sales tax exemption.

It appears from the reading of this publication, that only sales of items in
excess of $5,000 each by colleges or universities is subject to sales tax
collection, and that sales of items for greater than $5,000 by other
organizations would still be exempt.

I have been informed in by your office that this $5,000 limitation applies to
ALL of the 501(c) organizations which otherwise would be exempt from sales tax
collection on lower priced sale items. The publication produced by the
Controller's office, and which is widely distributed to the public does not
make this provision clear, and so I am concerned about what type of remedies
are available to organizations which relied on this publication in error. I
would hope the publication that you present to the public could be revised
again to make this area more clear so that organizations may better understand
their responsibility.

Response: Thank you for bringing this point to our attention. The $5,000
limitation does apply to all 501 (c) organizations eligible to hold the two
one-day tax-free sales. I will place a copy of your letter and this response
in this publication's file so that the next revision of this publication this
clarifies this point. Please note that the $5,000 limitation is clearly
spelled out in Texas Tax Code section 151.310(c) and Rule 3.322(g)(2) thereby
limiting any remedies in this area.

Tax Statutes, Rules, and Publications are available at
.

The State Tax Automated Research System, which provides viewing and downloading
edited letter rulings, hearings, AG opinions, etc., may also be accessed
through our website at .

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, You may e-mail our tax help section at .
You may also call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts.

Gilbert Zamora

Tax Policy Division