Discussion:NFPO's & 1099's
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Discussion Forum Index --> Basic Tax Questions --> NFPO's & 1099's
Discussion Forum Index --> Tax Questions --> NFPO's & 1099's
Doubletrouble (talk|edits) said: | 17 February 2008 |
| Is a NFPO who holds a semi-annual garage sale for its members required to issue 1099's to selling members. The organization collects the money for the sale of items, keeps 13% and issues a check the the sellers for the remainder. | |
| February 17, 2008 | |
| So the members are providing services (selling?) to the NFPO? I'm curious about what this organization does. | |
| 17 February 2008 | |
| I'm curious too. Sounds a lot like something a neighborhood association might do. Sounds like the organization is just organizing and advertising the event and takes a cut of the proceeds. | |
Doubletrouble (talk|edits) said: | 17 February 2008 |
| The NFPO is a mom's type support group. The garage sale is the only fundraiser. The NFPO keeps a portion of the sellers proceeds. The members supply their own items for sale. The members are required to assist in the garage sale. | |
| 17 February 2008 | |
| If selling personal stuff almost universally at a loss, any such person getting a 1099 might be every unhappy. From no 1040 reporting requirement to.... I would call it purchase of inventory on assignment. No 1099 needed. | |
Doubletrouble (talk|edits) said: | 17 February 2008 |
| Does the fact that the NFPO keeps a portion of the sales proceeds create any problems? Also, the NFPO collects the sales proceeds and then issues a check the the individual sellers for their portion less the 13%. | |
| 18 February 2008 | |
| Doubletrouble, What kinds of problems are you concerned about here? You must have something in mind. I don't see any issues of concern. The NFP is simply holding a fundraising event. It organizes the event, collects the money and takes a cut of the proceeds. This is an every day run-of-the-mill fundraising effort, and based on the facts as given, there are no issues of concern.
If I wanted to create an issue, I might ask the question: Do the participants get to take a charitable deduction for the 13% that they pay to the charity? Probably not, but if they gave more than the 13%, the extra would be a deductible contribution. | |
| 18 February 2008 | |
| Hey, if this NFPO can get me more than 600 for my junk, let me know where this garage sale is! | |
Ken@seamann.com (talk|edits) said: | 18 February 2008 |
| If the NFPO is collecting the money & keeping a cut, it is liable for collecting sales tax & remitting it to the state. Might want to rethink this arrangement. (Calif) | |
| 18 February 2008 | |
| Very good point Ken. It would be a good idea to clarify that with whatever state the organization operates in. | |
| 18 February 2008 | |
| Well, maybe not, if it isn't doing this more than twice a year. You're not a seller in California unless you are in the business of selling tangible personal property, or you make more than two significant sales of TPP in a 12-month period. Cal. Rev. & Tax. Code Sec. 6019; 18 Cal. Code of Regs. Sec. 1595. | |
Doubletrouble (talk|edits) said: | 18 February 2008 |
| Thanks to you all for your input.
The biggest issue we're hoping to clarify is whether 1099's need to be issued to the sellers. The second issue is whether holding the garage sales is considered UBIT to the club. In the past there were two garage sales per year. Recently, another sale was added for members only! The club is not in CA. I don't know if that matters for purposes of the sales tax issue. | |
| February 18, 2008 | |
| It sounds like there is no 1099 reporting issue here and likewise no UBI issue either. My question, however, is: Why is the organization paying the members for the goods sold? Typically the organization would gather donations from members and keep all of the proceeds. | |
Doubletrouble (talk|edits) said: | 18 February 2008 |
| I wouldn't say the org is paying for the goods sold, as much as I would say that the sellers are paying the org for the privilege of the venue for the sale and the reputation of the clubs' garage sales. | |
| 18 February 2008 | |
| Thinking of over $600 paid to any member after the 13% take, and at garage-sale prices, is it possible members are gathering "donations" to sell from people they know? We gotta run out of salable stuff to sell, and which we don't want, eventually. And maybe a private inurement problem, even though theoretically -0- gain/loss, they have the actual cash as de facto profit. | |
Doubletrouble (talk|edits) said: | 18 February 2008 |
| The garage sale is for members to sell baby items etc. that they no longer need. It's not always the same sellers. I'm not sure I'm following the "private inurement problem" could you please explain? | |
| 18 February 2008 | |
| I don't know exempt law that well, but I was thinking of members selling other people's stuff (under guise of helping out the club) and keeping the 87% without telling them. Rather dishonest, granted. But if all is member's own personal stuff, I don't even see a 1099 question. But it seems odd to not let the org keep 100%. | |
| 18 February 2008 | |
| Doubletrouble, sales tax is an issue in any state other than New Hampshire, Oregon, Montana, or Delaware. (Even Alaska, which has no statewide sales tax but has local sales taxes in most of the populated areas.) Every other state requires "retailers" to collect and pay over sales tax on retail sales. There is considerable variation in how states define a "retailer" for this purpose, and many states have special rules exempting "garage sales" under certain specified circumstances, which this arrangement may or may not meet, depending on the rules of the particular state. Some states exempt sales by charitable organizations (501(c)(3)s). Whether this organization's sales are subject to sales tax depends on law of the state it is in. | |
| February 18, 2008 | |
| Private inurement is when an individual who has control over the organization benefits inappropriately from it. In this case, TxSrv is thinking that if the members collect donations from other people, sell them through the organization and then receive payments for those sales, that could cause a problem. If the members are not collecting goods from others, private inurement is not an issue in this situation. | |
Doubletrouble (talk|edits) said: | 18 February 2008 |
| Thank you. I will check the GRT laws for our state. Based on Natalie's definition of private inurement, I'm pretty sure that is not an issue. | |
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