A 501(c)(3) nonprofit plans to hold an annual fundraising banquet selling food, beer, wine, and liquor, prepared and served by its own volunteer members. Does the nonprofit need to collect Texas sales tax on the food and beverage sales?

Plain-English summary

A 501(c)(3) nonprofit wrote to the Comptroller's Exempt Organizations section asking about an upcoming fundraising event where it planned to sell and serve beer, wine, liquor, and food.

The Comptroller laid out the specific conditions under which nonprofit/volunteer groups don't have to collect sales tax on food and beverage sales (the letter gives iced tea, sodas, and coffee as examples) during a fundraiser:

• The food sale must be an annual event.
• It must not exceed one week in duration.
• It must be a fundraising project run exclusively by volunteers of the participating nonprofit organization(s).
• It must be entirely noncommercial — no caterer, restaurant, or similar prepared-food retailer can be involved; only unpaid volunteers can prepare and serve the food and beverages.
• The nonprofit can't sell tax-free if doing so puts it in direct competition with a retailer required to collect tax on similar food/beverage sales at the same event.

Two important carve-outs: this food/beverage exemption does not extend to sales of alcoholic beverages themselves, nor to other taxable items sold at the same event (the letter gives arts, crafts, and T-shirts as examples) — those remain taxable regardless of the food exemption. Separately, apart from the annual fundraiser, the organization (and each of its bona fide chapters) may also hold up to two one-day tax-free sales per calendar year: items destined for that one-day sale can be purchased tax-free using an exemption certificate stating they'll be resold at the one-day event, and the organization doesn't need a sales tax permit for it if it makes no other taxable sales during the year.

What this means for you

Nonprofits and volunteer organizations planning fundraising banquets/food sales

Structure your annual event carefully to preserve the food/beverage exemption: keep it to one event per year, cap it at one week, use only unpaid volunteers (no caterer or restaurant involvement), and avoid directly undercutting a taxable retailer selling similar food at the same event. Remember alcoholic beverage sales and other taxable merchandise (crafts, T-shirts, etc.) are taxable regardless.

Organizations wanting more than one tax-advantaged sales event per year

Beyond the annual food/beverage fundraiser, you can separately run up to two one-day tax-free sales per calendar year for other merchandise, using an exemption certificate to buy the resale inventory tax-free — and typically without needing a sales tax permit if that's your only taxable-sales activity all year.

Accountants and tax professionals advising nonprofit clients

Point clients to Comptroller Bulletin #94-125 and Rule 3.322 for the fuller exempt-organizations framework this letter draws from — and make sure clients understand these are two SEPARATE tax-advantaged mechanisms (the annual noncommercial food-sale exemption, and the two one-day tax-free sales) that can be used together.

Common questions

Q: Does our nonprofit need to collect sales tax on food and drinks sold at our annual fundraiser?
A: Not if the sale is limited to one annual event of one week or less, run entirely by unpaid volunteers with no caterer/restaurant involvement, and doesn't unfairly undercut a taxable retailer selling similar items at the same event.

Q: Does this exemption cover the beer, wine, and liquor we plan to sell too?
A: No — the food/beverage exemption specifically does not apply to sales of alcoholic beverages.

Q: What about other items we sell at the event, like T-shirts or crafts?
A: Those remain taxable — the exemption covers only food and beverages meeting the stated criteria.

Q: Can our nonprofit have more than one tax-free sales event per year?
A: Yes — separate from the annual food/beverage fundraiser, you can hold up to two one-day tax-free sales per calendar year, buying resale inventory tax-free with an exemption certificate.

Q: Can I rely on this letter for my own nonprofit's fundraiser?
A: No. It's based on the facts presented, and the letter notes other facts, though similar, may provide a different result.

Citations and references

• 34 Tex. Admin. Code Rule 3.322 (exempt organizations)
• Comptroller Bulletin #94-125, "Exemptions: Sales Tax Information for Non-Profit Organizations"

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9804275L

Original ruling text

April 6, 1998

Dear **

This is in response to your letter to our Exempt Organizations sections
requesting exemption for your non-profit 501(c)(3) organization. You also asked
about fundraising events that you plan to hold where you will sell and serve
beer/wine/liquor and food.

Response: Non-profit civic or other volunteer groups are not required to
collect sales tax on the sale of food and beverages (i.e., iced tea, sodas,
coffee) during an annual fund-raising event when the members prepare, sell, and
serve the meals and if the following criteria are met:

The food sale is an annual event.

The food sale does not exceed one week.

The food sale must be a fund-raising project exclusively provided by the
volunteers of the participating nonprofit organizations.

The food sale must be noncommercial in every respect. The food and beverages
cannot be prepared or served by a caterer, restaurant, or any similar type of
prepared food retailer. Any food and beverages must be prepared and served by
the volunteers (without pay) of the participating nonprofit organizations.

The participating nonprofit organizations cannot sell food and beverages tax
free if in competition with a retailer who must collect tax on food and
beverage sales at the same event.

This policy regarding the annual food sale or banquet does not apply to sales
of alcoholic beverages or taxable items (i.e., arts, crafts, T-shirts) other
than food and beverages.

In addition to this fund-raiser, your organization may hold two one-day,
tax-free sales each calendar year. Items to be sold at the one-day, tax-free
sale may be purchased tax free by issuing an exemption certificate to the
seller. The certificate must state that the taxable items are to be resold at
the one-day, tax-free sale. A sales tax permit is not required for the sale if
the organization does not make other sales of taxable items during the year.
This provision also applies to each bona fide chapter of the qualifying
organization.

I am also enclosing our Bulletin (#94-125) Exemptions: Sales Tax Information
for Non-Profit Organizations and Rule 3.322 - Exempt Organizations, for your
information.

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, please 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. You may also e-mail our tax help section at:
[email protected].

Sincerely,

Gilbert Zamora
Tax Policy Division