The Taxman Cometh (Yes, Even For Your Exempt Organization)
By; Brad Ball
Vice President, Big Buzz Idea Group
I was talking to a nonprofit professional recently about Chicago’s Amusement Tax. We discussed its implications for membership-based organizations and their events.
In short, within the City of Chicago, any event or instance that can remotely be considered amusement is subject to an additional 9% tax in addition to sales tax. The Amusement Tax (aka “The Cloud Tax” or “The Netflix Tax“) made headlines recently after the City successfully sued to have the tax imposed on the purchase of all streaming video services based on a Chicago payment address of the account holder’s credit card.
Wow. Also in the news, and a key subject of our conversation, was the recent update by popular event ticketing website, Eventbrite, announcing that they would automatically begin to collect and remit Amusement Tax for any event located at a Chicago address. (Eventbrite was also successfully sued by the City to the tune of $799,000 for past due Amusement Tax collections and remittance.)
Surely, my colleague and I agreed, our organizations needed to pay attention to this tax. But the question was to what end? Here are some of the things we considered:
- Are all events subject to the tax? If not, which ones are exempt and how do we exempt them?
- Could organizations just ignore it? If they do not collect it and do not remit it, what’s the risk?
- Should we just use a different ticket platform since many other popular sites did not indicate Chicago Amusement Tax collection?
- Should the tax simply be passed to the end-user as a cost of doing business?
We covered answers to some of these questions as they were locally relevant and waxed philosophical on the rest.
In general, for any NPO, questions related to taxes are very important to ask and know the answers to. Those answers may differ not only for individual organizations; within one organization, they may differ from one event to another.
They certainly vary from location to location – obviously, Chicago’s Amusement Tax is not relevant for an organization in New Jersey. But it turns out Eventbrite adds a 6.25% sales tax for events in that state!
But the conversation about tax responsibility is not just about sales tax – taxes come in many forms, many of which nonprofit organizations are, in fact, responsible to pay. Some of those may include payroll taxes(!), property taxes, liquor taxes, and let’s not forget the frequently uncomfortable topic of Unrelated Business Income Taxes (UBIT).
One good gauge of your tax responsibility lies in your 501(c) exempt status. For example, 501 (c)(3) organizations are usually exempt from sales and property tax and income tax. But a 501 (c)(6) is not exempt from sales and property tax. What about a 501 (c)(4)?
A few key takeaways regarding taxes and your nonprofit organization:
1) Know your tax responsibilities. If you are not sure, talk to your accountant or CPA to make sure you are paying the appropriate taxes.
2) When using online ticketing platforms, make sure to set up your account to collect any necessary taxes.
3) File your organization’s tax return. Depending on gross receipts value, the documentation your organization owes the IRS at the end of the year may differ.
As the adage goes: the only things certain in life are death and taxes. And you can be sure, the taxman cometh for your exempt organization, too. But now that you know he’s coming, it will be good to know what to tell him when he knocks on the door.