At a nonprofit's one-day tax-free fundraising auction, is there a dollar cap on what can be sold tax-free, and does it matter whether the item was purchased, donated, or manufactured by the organization?

Plain-English summary

A nonprofit organization asked the Comptroller about the tax treatment of items it planned to sell at fundraising auctions.

The Comptroller quoted Tax Code § 151.310(c) directly: a qualifying exempt organization (and each bona fide chapter) may hold two tax-free sales or auctions per calendar year, each lasting one day only. Within that framework, the dollar-cap rule depends entirely on how the item reached the organization:

• Items donated to or manufactured by the organization: these can be sold tax-free regardless of the sales price — no dollar cap at all — as long as the buyer isn't the same person who donated the item.
• Items the organization purchased: these are only exempt if the sales price is $5,000 or less. If the winning bid exceeds $5,000, the entire sales price becomes taxable, not just the amount above $5,000 (the letter's example: an item purchased by the organization and auctioned for $7,000 owes sales tax on the full $7,000).

The requesting organization held 501(c)(4) status and could conduct its two annual tax-free sales/auctions under the guidelines in Rule 3.322(g)(2) ("Exempt Organizations").

What this means for you

Nonprofits running fundraising auctions

Track how each auction item was acquired. Donated and organization-manufactured items can fetch any price tax-free at your two annual one-day sales/auctions. But if you purchased an item yourself to auction off, watch the $5,000 threshold closely — going even $1 over means the entire sale becomes taxable, not just the excess. Consider whether high-value items should come from donations rather than organizational purchases if you want to preserve tax-free treatment.

Accountants and tax professionals

This letter is a clean, statute-quoted explanation of § 151.310(c)'s two-tiered treatment (unlimited for donated/manufactured items vs. capped at $5,000 for purchased items) plus the "cliff" effect once the cap is exceeded — useful for advising any exempt-organization client planning a high-value fundraising auction.

Common questions

Q: Is there a dollar limit on items my nonprofit auctions off tax-free?
A: Only for items your organization purchased — those are exempt up to $5,000. Donated or organization-manufactured items have no dollar limit.

Q: What happens if a purchased item sells for more than $5,000 at our tax-free auction?
A: The entire sales price becomes taxable, not just the amount over $5,000.

Q: How many tax-free sales/auctions can our organization hold per year?
A: Two, each lasting one day only, under Sec. 151.310(c) and Rule 3.322(g)(2).

Q: Can the person who donated an item buy it back tax-free at our auction?
A: No — the unlimited-price exemption for donated items doesn't apply if the purchaser is the person who donated it.

Citations and references

Statute and rule:

• Tex. Tax Code § 151.310(c) (two one-day tax-free sales/auctions)
• 34 Tex. Admin. Code § 3.322(g)(2) (Exempt 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/9909734L

Original ruling text

September 29, 1999

Dear **:

Thank you for your recent letter regarding fundraising activities by your
organization and Texas sales tax.

Texas Tax Code Sec. 151.310(c) contains the following language: "An
organization that qualifies for an exemption under Subsection (a)(1) or (a)(2)
of this section, and each bona fide chapter of the organization, may hold two
tax-free sales or auctions under this subsection during a calendar year and
each tax-free sale or auction may continue for one day only. The sale of a
taxable item the sales price of which is $5,000 or less by a qualified
organization or chapter of the organization at a tax-free sale or auction is
exempted from the sales tax imposed by Subchapter C of this chapter, except
that a taxable item manufactured by or donated to the qualified organization or
chapter of the organization may be sold tax free regardless of the sales price
to any purchaser other than the donor."

If a taxable item is donated to or manufactured by an exempt organization,
there is no limit on the sales price when the item is sold or auctioned (the
item cannot be purchased by the person who donated the item).

If an item is purchased by the exempt organization and is sold at auction, if
the selling price or winning bid is $5000 or less, the sale is exempt. If the
selling price or bid exceeds $5000, the entire sales price is subject to Texas
sales tax. For example, if an item is purchased by an exempt organization and
is sold at auction for $7000, sales tax is due on $7000.

Your organization has a 501(c)(4), and may conduct two tax-free sales or
auctions per year following the guidelines in section (g)(2) of Rule 3.322
"Exempt Organizations." A copy of the rule is enclosed.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

You may call me toll free 1-800-531-5441, extension 5-9787, if you have any
questions or need more information. The direct line is 512/305-9787. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Philip Knisely
Tax Policy Division