A small Senior Center in Ohio charges $3 for a hot meal each day to clients. The Center is a 501c3 non-profit organization registered with the state. It receives funds from the county Senior Center, but the $3 per meal charge does not cover the expense of food and kitchen help, so they're basically operating at a loss. Are they required to pay sales tax to the state for meals consumed on-site for senior nutrition? Do they need a vendor's license? Their accountant has been working under the assumption that because it is a non-profit organization that provides meals to seniors, that it is exempt from sales tax.
Thank you for your help!
The likely answer is yes, they do need to pay sales tax. As other attorneys have previously mentioned, 501(c)(3) status is federal in nature and generally only applies to income tax. Sales tax is a state-specific question.
Ohio generally requires businesses to collect and remit sales tax on the sale of personal property. The statutes have defined personal property broadly to include food sold for consumption on the premises. That is why when you go out to dinner at a restaurant, your bill has sales tax included.
There are some exclusions to the sales tax rule. For instance, if you purchase products from a supplier and then you use those products in the creation of your own product, you may not have to collect and remit sales tax.
Ohio law does have an exemption for sales by nonprofit charitable organizations. However, it only applies if the nonprofit makes sales on no more than six days in a calendar year. This is likely to allow groups to hold bake sales or another occasional fundraiser without being concerned with sales tax. And as a nonprofit charitable organization, they would not have to pay sales tax on things they purchased.
Ohio also has exemptions for schools, dormitories, fraternities, etc. selling food to students, as well as companies that provide free meals to employees as part of their compensation. However, a quick glance does not turn up anything regarding senior centers or the sale of food to seniors.
I would advise the center to talk to an attorney as soon as possible about this. He or she can do a more comprehensive search to make sure there are no exceptions. Assuming the center should have been collecting sales tax, he or she can also deal with the Ohio Dept. of Taxation to get the center in compliance and try to avoid any penalties.
I hope this helps.
The accountant's assumption is dangerous. 501c status does not affect sales tax unless the state laws says that it does. Further, some of the specific facts upon which this question turns, may not have been develooped in your fact pattern. You mention "Senior Center" and "they". Can anyone eat there? Is it restricted to members only? Is there a means test for customers? Is there a different price charged for outsiders? The rules in various states are quite specific and arbitrary and need to be examined based upon minute facts as to how the center works. In my state, a student with ID doesn't pay tax for prepared food, but has to pay tax for sodas (this is logically insane and an accounting nightmare).
I would suggest that you get the statutes and study and outline them thoroughly. Then audit the non-profits food service operations and identify the parameters which fit within the statute, those that have an uncertain fit and those that do not fit. You may be able to make recommendations for some changes that will bring operations more squarely within the "no-sales tax" umbrella, if it exists. The possibility of no sales tax for your operation may not exist at all in Ohio. It may be that one or two changes to operations might save the day if exemption from sales tax is your goal.
Without this intensive learn-the-state-sales-tax-rules + audit = recommendations, you may not have as concrete or reliable an answer as you might desire.
Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.
This is 100% correct. Sales tax is a state issue and not a federal tax issue. You need to look into the laws that govern non-profit organizations in your state. This is more likely to give you information relating to the requirement to pay sales tax in your state.