By the way, while we're talking about Sales Tax...

Watch the math when you figure this up at the end of the year. Too many people pay taxes on their taxes to keep the calculations simple, since PTO's don't usually add tax separately on each transaction like stores do - instead just figuring it up at the end of the year.

Here's an example:

Suppose you sell 100 T-Shirts for $10 each. The $10 includes tax (assume rate 8%). Thus, you have $1000 to report at the end of the year.

A lot of people just take $1000 x .08 = $80 and pay that in to the state. If you do this, you taxed your tax and overpaid.

It's actually (rounded):

$1000/1.08= $926 T-Shirt Revenue
$1000-$926=$74 Sales Tax Received

In this example, it's only a $6 difference, but why give away any money you don't have to?

Critter's right. On sales tax, there is the issue of paying it both when you buy and sell.

Sales tax is added to appropriate purchases and collected with the total amount. Then, each seller has to keep records of how much tax was collected and remit that to the state either quarterly or annually.

So any sales tax you paid to the state(that is trackable) would only be for you as a SELLER.

I am currently working on the 501(c)(3) application for our PTO, so I happen to have the IRS Publication 557, "Tax Exempt Status For Your Organization", at hand (a little light reading for those nights TV is dull...). On page 17, you can find the "Gross Receipts Test" which specifically defines how you determine if your organization must file Form 1023 for non-profit status. I won't retype it all here, but it's a bit more complicated than Tigger5 described. Unless your PTO is very small, or extremely new, you should probably go ahead and dive into the application process. It's not that bad, and there's alot of support here. In fact, I suggest that the only reason any of us PTOers know anything at all about the IRS and Form 1023 (and doing the right thing in this respect), is because of this forum. Thanks Tim!

You can order you own copy of Publication 557 through www.irs.gov in the forms/publications area.

Regarding your sales tax issue, Cyndi. Are you sure you arent filing form because your PTO sold something? It's my understanding that in my state, while the PTO does not pay sales tax on something WE buy, we could be liable to collect and remit sales tax on items we purchase for resale such as t-shirts. You might find that's why your PTO has filed sales tax returns.

[ 03-17-2003: Message edited by: Critter ]</p>

There are different levels of taxation, so you need to understand who controls what.

SALES TAX is a state-levied tax, so has nothing to do with the IRS. If you are listed as a tax exempt entity in your state, that means you are probably exempt from SOME sales tax items, as your state law prescribes. For instance, in Texas, we can have two tax-fee days a year as a qualified tax-exempt non-profit organization. We still need to file and pay sales tax on other things, such as our T-Shirt sales throughout the year. (And note - even beyond our two "free" days, not everything sold is taxable. So you need to find out what is and isn't in your state.) If your group paid sales tax on everything, you are probably right to check into a refund, but you need to deal witht the appropriate state agency (often the State Comptroller).

As far as the IRS, they control federal income taxes (business or person). A PTO is type of non-profit business. The filing rules are based on GROSS receipts. Which means it doesn't matter how much you made after expenses were paid (NET receipts). This means that every dollar that came into the PTO counts (t-shirt sales, membership, donations, auctions, catalog sales, etc.)

Twice, I have been told by IRS reps that if a PTO is making $5000 or more, gross, it should be filing SOMETHING - either be setup as a 501(c)(3) or file a business return, etc. I don't know if this is a general rule of thumb or if it's actual law. Once formally set up as a 501(c)(3), there are specific rules for when and how those file. They must file if grossing more than $25,000, but many file voluntarily anyway.

I've never heard of the 3 year averaging concept, I thought it was an annual determination. But I'm not an accountant, and don't pretend to have all the answers. www.irs.gov is indeed a great site and the reps in the Tax Exempt Division are wonderful if you need to call them:

IRS Exempt Organization customer service toll-free line 1-877-829-5500. Their hours are 8:00am - 9:30pm EST Monday-Friday.


Good Luck!

Along the same lines as the original question about filing taxes, is the "amount raised" the gross proceeds of all fundraisers for the average of three years, or is it the net profit after distribution of what we've brought in?

The very best place to get tax info is of course www.IRS.Gov. They have a great section on non-profits. However, from the research I've done as Past Treasurer of our Parent Group, what you need to is file a 990 only if your organization makes $25,000 or more annually CONSISTENTLY. What you do is take the last three years total earned add them together and divide by 3. So if in 2000 your PTG made $15,000, then in 2001 you had a great year and raised $40,000 but then in 2002 you only raised $2,000 you would add those up for a grand total of $57,000 divide by 3 which is $19,000 ~ you don't file anything. Even though you made $40,000 one year that isn't consistent for your group and so they don't expect you to file. At the end of this year you do the same for 2001, 2002, 2003 and so on. Sometimes, if you haven't filed anything for awhile you may receive a 990 from the IRS, then I would file it. This has happened to us one time in 15 years! Otherwise, you are correct, you file nothing. Keep your records though obviously in case they choose to audit your organization. I hope this helps. I personally got this info directly from an IRS rep two years ago and have checked the website for updates ever since. CONSISTENTLY