Does a church-sponsored youth troop need a sales tax license to sell and deliver water softener salt to neighborhood residents as a fundraiser?

Plain-English summary

A youth troop sponsored by a local church congregation (informed by the church that it was a 501(c)(3) exempt organization) planned to run a quarterly fundraiser: taking pre-orders from neighborhood residents (many elderly widows, widowers, and retirees who struggled to carry heavy bags) for water softener salt, then purchasing the salt from a supplier, delivering it, and installing it directly into customers' water softeners for a small profit margin per bag. Funds raised would cover troop equipment and summer camp fees, with any long-term excess donated to charity or used for community service. The troop asked whether it needed a sales tax license to collect and remit sales tax on these sales.

Exemption requires both organizational qualification AND that the sales be part of the group's regular exempt function. Utah exempts sales by religious or charitable organizations from sales tax, but only if the sales are made in the regular religious or charitable conduct or function of the organization (§ 59-12-104.1). There are two ways the troop could qualify as exempt: (1) the troop itself obtains its own 501(c)(3) status with the IRS and applies for a Utah exemption number, or (2) the troop falls under the umbrella of an already-exempt parent organization (like a sponsoring church or a national youth organization) that has actually extended its exempt status to cover this specific kind of sale. The Commission specifically cautioned that, in its experience, Scout-type Councils typically have NOT authorized individual troops to use the Council's exempt status for sales like this, and national organization policies may separately prohibit this type of fundraiser -- so the troop was urged to check directly with those organizations rather than assume coverage.

Even a qualifying organization can owe tax on "unrelated" sales. Even if the troop (or its umbrella organization) qualifies as exempt, Utah Admin. Rule R865-19S-43 ties the concept of "unrelated trades or businesses" to IRC § 513 -- so if the organization must include the fundraiser receipts in its taxable income for federal income tax purposes (because the activity isn't substantially related to its exempt purpose), those same sales are ineligible for the Utah sales tax exemption unless some other exemption independently applies.

If not exempt, the troop needs a license -- but can buy its own inventory tax-free. If the troop doesn't qualify as exempt (on its own or through a parent organization), it's responsible for collecting sales tax on its salt sales to residents and must apply for a Utah sales tax license using form TC-69. However, it can still purchase the water softener salt itself tax-free from its supplier under Utah's resale exemption (§ 59-12-104(28)) for property purchased for resale, by holding a sales tax license and providing the supplier a completed exemption certificate (form TC-721) for the vendor's tax records.

What this means for you

Church, school, scout, and youth-group fundraisers involving product sales or delivery

Don't assume your sponsoring organization's tax-exempt status automatically covers your fundraiser. Confirm directly with any parent organization (council, diocese, national body) whether it has actually extended its exemption to your specific activity -- many national youth organizations do NOT authorize individual chapters/troops to use the parent's exempt status for commercial-style fundraisers, and some prohibit this type of sale outright by policy.

Nonprofits running fundraisers that resemble ordinary retail sales

Even a genuinely tax-exempt organization can owe sales tax on fundraiser sales if those sales would count as "unrelated business income" for federal tax purposes -- the activity has to be substantially related to your exempt religious/charitable mission, not just fund it, to keep the sales tax exemption too.

Nonprofits and clubs needing to sell inventory-based products

If you don't qualify for the exemption, get a sales tax license (TC-69) so you can both collect sales tax properly on your sales AND buy your own inventory tax-free under the resale exemption using an exemption certificate (TC-721) -- avoiding double taxation on the same goods.

Common questions

Q: Is a church or scout-troop fundraiser automatically exempt from Utah sales tax?
A: No. The organization must qualify as exempt itself or fall under a parent organization's exemption that's actually been extended to that specific activity, AND the sales must be part of the organization's regular religious or charitable function.

Q: Can a scout troop rely on its national council's tax-exempt status for a fundraiser?
A: Not automatically -- the Commission noted that Councils typically have not authorized individual troops to use their exempt status for this kind of sale, so it must be confirmed directly with the parent organization.

Q: If our nonprofit is otherwise tax-exempt, can a specific fundraiser still be taxable?
A: Yes, if the fundraiser generates income considered an "unrelated trade or business" under federal tax rules (IRC § 513) -- meaning it's not substantially related to your exempt purpose.

Q: If we're not exempt, can we still avoid paying sales tax when we BUY our fundraiser inventory?
A: Yes. With a sales tax license and a completed exemption certificate, you can buy inventory tax-free under the resale exemption, then collect sales tax properly when you sell it to customers.

Q: Does this ruling apply to my organization's fundraiser?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission analyzes nonprofit fundraiser sales.

Citations and references

Statutes and rules:

• § 59-12-104.1 (religious or charitable organization exemption)
• § 59-12-104(28) (resale exemption)
• Utah Admin. Rule R865-19S-43 (unrelated trade or business, tied to IRC § 513)

Forms referenced:

• Form TC-69 (sales tax license application)
• Form TC-721 (exemption certificate)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-100.pdf

Original ruling text

96-100

Response June 27, 1996

Request

June 5, 1996

Utah State Tax Commission

Attention: XXXXX

210 North 1950 West

Salt Lake City, Utah 84134

Re: Request for Opinion on Sales Tax

Issue in XXXXX Fund Raiser

Dear XXXXX

I am involved with a local troop of the XXXXX, sponsored by a local congregation of a church which, I am informed by the church, is a 501 (3)(c) exempt organization. We are formulating plans to undertake a fund raising activity and the question came up as to whether we would need a sales tax license in connection with the activity. I will outline the factors of our activity below. I request that you consider these factors and then let us know whether we are required to have a sales tax license and to collect and remit sales tax on this fund raising activity.

We will undertake the following activity four (4) times per year. The XXXXX troop will take pre-orders from residents in our neighborhood (consumers) for the purchase and installation of bags of water softener salt into the residents' water softeners. The XXXXX troop will then purchase the bags of water softener salt from a supplier and deliver the bags of water softener salt to and install in the water softeners of the consumer, stacking bags of extra salt ordered by the consumers next to their water softeners. The price paid by the consumers to the XXXXX troop will give the troop a profit of XXXXX to XXXXX on each bag delivered.

Much interest has been shown by the members of the neighborhood where most of the XXXXX reside, as a very large number are widows, widowers and retirees who, because of age, find it difficult to carry and maneuver bags of water softener salt.

The funds raised from this project will go into the XXXXX troop's checking account and are used for the purchase and maintenance of XXXXX troop equipment and to pay for summer camp fees. The plan is that every couple of years, an analysis of needs will be done, and any excess monies will be donated to some charity or utilized by the XXXXX troop in providing some sort of service to the community, perhaps being used with XXXXX projects.

I would appreciate your providing us with some direction as to whether we shall be required to obtain a sales tax license, as soon as possible, as we are excited to continue forward with this project. We intend to hold off, however, until we hear from you.

Sincerely,

XXXXX

June 27, 1996

XXXXX

Re: Sales Tax Exemption for XXXXX Fund Raiser

Dear XXXXX:

We received your letter requesting information on whether your XXXXX fund raiser was tax exempt. The following two points should answer your question.

I. Does your troop qualify as a religious or charitable organization?

Under Utah law, sales by religious or charitable organizations are exempt from sales tax if they make the sales in the regular religious or charitable conduct or function of the organization. See Utah Code Section 59-12-104.1. This brings up two points; first, does the organization qualify as an exempt religious or charitable organization, and second, are the sales part of the regular religious or charitable conduct or function of the organization.

There are two ways that your troop may qualify as an exempt organization. First, if your troop qualifies as a 501(c)(3) organization itself with the IRS, it may apply for its own exemption number issued by the Tax Commission. Second, your troop may fall under the umbrella of an exempt organization. Both the XXXXX and the XXXXX are exempt organizations. If these organizations extend their exempt status to sales of water softener salt by your troop, the fund raiser sales may be exempt. In our experience, however, the XXXXX Councils have not authorized use of their exempt status by XXXXX troops, and the XXXXX policies may preclude sales of this nature. We urge you to explore this issue with these organizations.

Even if your troop qualifies for exemption, if your troop generates income from sales that are unrelated to the qualifying organization�s religious or charitable purpose, the sales will be taxable. Utah Administrative Rule R865-19S-43 ties the term �unrelated trades or businesses� to section 513 of the IRS Code. Therefore, if your organization is required to include receipts from some of its sales in its taxable income for federal income tax purposes, the activities that generated those receipts are ineligible for the sales tax exemption unless another exemption applies.

II. Applying for a sales tax license and wholesale exemption.

If you do not qualify as an exempt organization or a subunit of an exempt organization, your troop is responsible for collecting sales tax on these sales. You can apply for a sales tax license by submitting form TC-69 (enclosed). Furthermore, if the Tax Commission does not recognize your troop as an exempt organization, you may purchase the water softener salt tax free for resale. Utah Code Subsection 59-12-104(28) provides a sales tax exemption for property purchased for resale in this state. To claim this exemption you must have a sales tax licence and complete an exemption form (TC-721 enclosed) for your vendor�s tax records.

We hope that this information answers your questions. Please contact us again if you have any further questions.

For the Commission,

Alice Shearer,

Commissioner