An Administrator's Guide to California Private School Law

Chapter 19 – Fundraising

Sales taxes apply to the sale of merchandise or goods in California. Use taxes apply to the purchase of taxable merchandise that will be used, consumed, stored, or given away in California. 2493 The taxes apply not only to obvious sales transactions, but also to more obscure transactions, such as the sale of items at auction. These taxes are remitted to and administered by the California Department of Tax and Fee Administration. Schools should contact their tax advisor or the California Department of Tax and Fee Administration to determine when and how often sales taxes must be remitted. The California Department of Tax and Fee Administration website at https://www.cdtfa.ca.gov/ provides information on sales and use tax laws. Some items donated to schools for an auction are not subject to sales or use taxes. These items include donations of gift cards, gift certificates, services, or cash. These items are not subject to sales tax because they do not result in an exchange of merchandise or goods. Gift cards, gift certificates, services, or cash donations are not considered taxable regardless of the person donating, buying, or using them. 2494 In the normal course of business, items withdrawn from a seller’s inventory that are not resold are subject to use tax. However, items withdrawn from a seller’s inventory and donated to qualified organizations, such as California nonprofit schools, are exempt from use taxes. 2495 Merchandise or goods donated by a donor who paid sales or use tax at the time of purchase, however, do not qualify for this exemption. This is true even if the donated items are resold by the school, and the school charges the required sales tax when it sells the items. 2496 Example 1: Mr. Jones sells camping and hiking gear at his travel shop and provides guided tours. Mr. Jones donates a tent, a bicycle, and a gift certificate to his son’s school. Mr. Jones does not owe use tax on any of these items since the tent and bicycle came from his resale inventory and the tax does not apply to services or gift certificates. Thus, the school does not have to charge sales tax on the auction price for their fundraiser. Example 2: Ms. Miller works for a company that sells wholesale office supplies. Her daughter’s school asks for donations of new or gently used children’s toys to put up for auction at a fundraising event. The company Ms. Miller works for does not sell children’s toys. Ms. Miller purchases and donates ten children’s toys on behalf of her company. Ms. Miller is required to pay sales tax when she purchases the children’s toys from the toy store. The school, therefore, should charge sales tax on the auction price of the toys for their fundraiser. California Department of Tax and Fee Administration has additional information. B. A UCTION D ISCLOSURE S TATEMENTS F OR C HARITABLE C ONTRIBUTIONS Purchasers of items at a private nonprofit school charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value. 2497 The purchaser must be able to show that he or she knew the value of the item was less than the purchase price. In situations where a donor purchases an item from the school for more than $75, the school must provide the purchaser a quid pro quo contribution disclosure statement. 2498

An Administrator’s Guide to California Private School Law ©2019 Liebert Cassidy Whitmore 604