When Do Associations Need to Collect Sales Tax?

finance Associations Now November/December 2014 By: William G. Scarborough

State sales tax laws are all over the map. So how do you know if your organization needs to collect sales tax in a certain state? Here are two important questions you need to answer.

Your association is growing. You have members across the country and are holding seminars and other events in numerous states. What is your organization's exposure under the sales tax laws of the states where you are serving your members?

This is a difficult question, as there is little uniformity among the tax laws of the 50 states. Here are two important questions to ask when evaluating your association's responsibility for collecting sales tax.

Where is the association subject to sales tax? The main test is whether an association has a sufficient physical presence—the legal term is "nexus"—in the state. If you have permanent employees, agents, or an office located in a state, they are likely to establish sufficient nexus to subject the organization to the state's sales tax. If your association is present in a state for a short time to hold a meeting or seminar, that event is likely to establish sufficient nexus for collecting sales tax on the fees for the goods and services sold at the event. Some state laws exempt sales at events when the duration is below a minimum number of days.

What goods and services are subject to sales tax? A tax is generally applied to the sale of tangible goods (such as books, magazines, clothing, or similar products) and certain services. Intangible property, such as a trademark, commonly is not subject to sales taxes. However, there are exceptions. For example, many states have begun to expand the types of services to which sales taxes apply. The District of Columbia applies the tax to the sale of "information services," broadly defined to include providing news or information. Event-registration fees may be exempt from sales tax when no tangible goods are associated with the fee and no direct service is provided. Always review the laws of the specific state where an event will be held, as some specifically include admission to events as a service subject to sales tax, and others specifically exclude certain kinds of services.

It is important to familiarize yourself with the laws of the specific states (and local areas) where your association conducts business to ensure that the organization fulfills its responsibility to collect sales tax wherever required.

[This article was originally published in the Associations Now print edition, titled "Coin Collection."]

William G. Scarborough

William G. Scarborough is vice president and general counsel at the Project Management Institute, Inc., in Newtown Square, Pennsylvania.