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501(c)(3) non-profits, food sales, and the Minnesota sales tax

Most everyone has attended church where food is prepared for and sold, usually in a potluck form, as we break bread and share a meal with fellow congregants. However, many churches, other non-profits, and their leadership don’t realize that if those sales are done improperly in Minnesota, there is a requirement that a sales tax be attached on those items for sale.

The general rule for non-profits and the Minnesota sales tax is that “if a non-profit makes taxable retail sales, it must collect and remit tax on those sales." [1] Therefore, if a non-profit were to prepare food that meet the following conditions (1) sold in a heated state or heated by the seller, (2) two or more ingredients are mixed or combined by seller, or (3) the food is sold with utensils by the seller [2], they are required by law to collect sales tax unless there is an exemption. There are three exemptions to the general rule.

1.General Fundraising Exemption: [3] If the otherwise taxable sales are made for a fundraising event, “sponsored by" a charitable organization, it is exempt from the sales tax. In order to qualify for this exemption, the non-profit must keep separate accounting records for each fundraising event, including all receipts, disbursements, and deductions from the gross receipts. This exemption applies to the sale of any tangible personal property, admission charges for the event, and the sales of any food, meals, or drinks. The non-profit itself must participate in the planning and managing of the event and the entire net profits must go to the non-profit organization. Each non-profit can only use this exemption for 24 events each year.

2.Fundraising Sales by Certain Non-Profit Groups: [4] Sales by certain groups and for certain purposes are exempt from the sales tax. These groups include youth groups and senior citizen groups as long as the annual receipts don’t exceed $10,000. There are other specific restrictions for each group such as additional limits if the youth group is associated with a school and age requirements of over 55 for senior citizen groups. If the fundraising sales are made off of a golf tournament or candy sales, those net proceeds are also exempt under this exemption rule.

3.Isolated or Occasional Sale of Tangible Personal Property: [5] If an isolated or occasional sales of tangible personal property occurs and the proceeds (less necessary expenses to obtain that property) are used exclusively for charitable, religious, or educational purposes, those sales will be exempt. This exemption is only applicable to sales that occur over a period of 25 days per year however.

This post is only meant to be a quick guide to those looking for general information on Minnesota non-profit sales tax and not legal advice for your organization. Should your organization be operating some sort of fundraiser, food sales, or sales of tangible personal property, please consult with an attorney practiced in non-profit law prior to your event as the exemptions in this post do not fully explore the options available to you under the law. An attorney will be able to further guide you on how to best operate the event in line with legal requirements by the state’s non-profit laws.

[1] MINN.R.8130.6200, SUBP.9

[2] Minn. Rev. FS102D

[3] MINN.STAT. §297A.70, SUBD.14

[4] MINN.STAT. §297A.70, SUBD.13

[5] Ibid.

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