Even though Colorado law allows charitable nonprofits to be exempt from state-collected sales taxes on items they buy, nonprofits must collect these sales taxes on most goods and services they sell.
Nonprofit leaders must devote resources to maintaining sales tax licenses, collecting sales taxes for state-collected and home rule jurisdictions, and complying with reporting requirements. For small nonprofits run by volunteers or a few staff, complying with these requirements can take time away from providing services or generating more revenues for growth.
Since 1995, Colorado law has also exempted nonprofits from collecting taxes on occasional sales to help nonprofits manage this responsibility. Occasional sales are defined as follows:
- funds raised through these sales are used in the course of the organization's charitable service
- funds raised through these net sales do not exceed $25,000 during any one calendar year; and
- sales take place for no more than 12 days, whether consecutive or not, during any calendar year.
If nonprofits exceed either the $25,000 or the 12 day threshold, then they are required to obtain a Colorado sales tax license and collect and remit these taxes to the state. Nonprofits are required to collect taxes and report for the entire year if they exceed either threshold.
Typically, donations are not considered sales. However, the fair market value of any benefits received by the donor in return for a donation are usually taxable and can't be deducted on federal taxes.
Issues with the exemption
Because the exemption has not been updated since 1995, the value of this policy has eroded over time. $25,000 in 1995 dollars has the same purchasing power as $15,000 in 2018. As a result, fewer nonprofits are exempted even if they are small or have limited fundraising activity. Additionally, the 12 day requirement has not been changed even though many nonprofits conduct sales throughout the year on the internet.
About the bill
HB 19-1323 modernizes the exemption by:
- Adjusting the exemption amount to $45,000 of net proceeds from sales;
- Eliminating the 12-day limit on occasional sales;
- Clarifying that otherwise taxable commodities and services are covered by the exemption in addition to personal property;
- Clarifying that sales taxes are due on or after the date the exemption amount is exceeded.
Eliminating this requirement also simplifies how nonprofits track their revenues from sales and determine if they exceed the revenue threshold and must obtain a Colorado sales tax license.
1323 passed the House and Senate unanimously and was signed into law in late May of 2019. The bill takes effect for Jan. 1, 2020.