Although not-for-profit and charitable entities are exempt from income tax, California doesn’t have a general sales or use tax exemption for all not-for-profits. This means that sales of tangible goods by not-for-profits to consumers in California could be subject to sales tax. In addition, use tax can be due on purchases of tangible personal property made from out-of-California suppliers.
In light of the COVID-19 pandemic, it’s important now more than ever to understand your tax nexus.
Below, we outline sales and use tax implications for not-for-profit organizations that conduct business in California.
Sales and Use Tax Overview
California sales tax is generally applicable to retail sales of tangible goods to customers made in state. In addition to the sales tax, the state imposes a complementary use tax that applies to purchases of tangible goods for use in California where the sales tax isn’t collected by the supplier or vendor.
Application of Sales and Use Tax to Not-for-Profit and Charitable Organizations
As noted above, not-for-profit or tax-exempt organizations, including 501(c)(3)s, are exempt from paying income tax on their not-for-profit activities. However, in California there aren’t general exemptions from sales or use tax.