Does a private vending-machine company owe sales tax on proceeds it donates to a school PTA fundraiser?

Plain-English summary

A company starting a small gumball-machine vending business asked whether proceeds were taxable when part of its business involved school PTA fundraisers, where proceeds are donated to the school.

The Commission explained that the 1996-amended school fundraising exemption doesn't reach this arrangement. Effective July 1, 1996, an exempt fundraising sale must be made by a public or private elementary/secondary school itself, or by a K-12 student — not by a private vendor — for the purpose of buying school equipment/materials or funding school-activity transportation, as part of an officially sanctioned activity under a formal school-district fundraising policy, with proceeds deposited in a school-controlled account (not compensating any teacher/employee). A private vending company running the machines and donating a share of proceeds doesn't fit that description — it's the vendor, not the school or its students, making the sale. (For sales before July 1, 1996, the prior rule similarly required the sale to be made under a school/teacher's direction, made by the students themselves, with proceeds used for school equipment/materials.)

Separately, though, the Commission noted that a different rule provides its own exemption for small vending-machine transactions: sales from vending machines are exempt from sales tax on each individual transaction where the proceeds don't exceed $1, so long as the operator reports and remits sales tax calculated on an amount equal to 150% of its cost for the items purchased for resale in the machines.

What this means for you

Vending-machine operators partnering with schools

Don't assume donating proceeds to a school PTA automatically makes your vending sales tax-exempt under the school fundraising rule — that exemption requires the sale to be made by the school or its students, following a formal district policy, not by your business. Instead, check whether the separate small-transaction vending exemption (proceeds ≤ $1 per sale, tax remitted on 150% of cost) covers your situation.

Schools and PTAs setting up fundraiser vending arrangements

If you want fundraiser sales to actually qualify for the school exemption, the sale needs to be structured as one made by the school or its K-12 students under a formal, district-adopted fundraising policy — not simply run by an outside vending company that donates a cut of the proceeds.

Common questions

Q: Does donating vending machine proceeds to a school PTA make the sales tax-exempt?
A: Not under the school fundraising exemption — that exemption requires the sale to be made by the school or its students themselves, not by a private vendor.

Q: Is there any exemption that could apply to small vending machine sales?
A: Yes — a separate rule exempts individual vending transactions where proceeds don't exceed $1, as long as the operator remits tax on 150% of its cost for the items sold.

Q: Can I rely on this 1996 ruling today?
A: Not directly — it binds the Commission only for the taxpayer and facts it addressed, and Utah's rules have been renumbered and amended repeatedly since (this ruling itself describes a mid-year 1996 statutory change). Verify current law before relying on it.

Citations and references

No specific Utah Code sections or numbered administrative rules are cited in the available response text; the ruling describes the 1996-amended school fundraising exemption and a separate small-vending-transaction exemption in general terms.

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-081.htm

Original ruling text

96-081

Response
May 15, 1996

Request

To:
Utah State Tax Commission

Please
send us a written statement concerning the following question:

We are starting a vending business
dealing with small gum ball-type machines.
We understand that we are liable for sales tax on the profit we make
from the business, but a part of the business will be dealing with fund raisers
for several local school PTAs and the proceeds donated to the schools. Our question is should these proceeds also
be taxed?

Your immediate response is
appreciated. Thank you!

XXXXX

XXXXX

Re: Sales
Tax on Fundraisers

Dear XXXXX

During
the 1996 legislative session, the legislature amended the school fundraising
exemption to apply as follows:

An
exempt fundraising sale is a sale by a private or public elementary or
secondary school or a student in grades K-12 (and not a private vendor)
where the purpose of raising funds is to purchase equipment or materials for
the school or to provide transportation in relation to school activities. The sales must be part of an officially sanctioned
school activity that is conducted in accordance with a formal policy which is
adopted by the school or school district to govern and supervise fundraising
activities. The revenues may not
directly or indirectly compensate a teacher or other school employee by direct
payment, commission or payment in kind, and the revenues must be deposited in a
dedicated account controlled by the school or school district.

The
amended fundraising policy takes effect July 1, 1996. The key to the exemption will be the formal fundraising policy
adopted in each school district. The
Office of Education is working with school district representatives to develop
a model policy that conforms with the legislative intent. So far the policy is still in the drafting
stages, but it should be finalized prior to July 1st. Once it is completed, the schools that you deal with should be
able to help you determine how to structure your transactions to fit within the
policy.

Any
sales prior to July 1, 1996 must conform to the current fundraising rule. That is,

1. the sales must be under the direction of a
   school, school association or teacher;

2. the sales must be made by the students; and

3. the revenues must be used purchase equipment
   and materials for the school.

With
regard to your sales, sales of items from vending machines are exempt for sales
tax on each transaction in which the proceeds of each sale do not exceed $1 so
long as you report and remit sales tax calculated on an amount equal to 150% of
your cost of items purchased for resale in the machines.

Please
contact us again if you have any other questions.

For
the Commission,

Alice
Shearer,

Commissioner