Jeanne M. Dee
Jeanne M. Dee, CPA/CGMA, is the audit and assurance practice leader for the Not-for-Profit Group at Anders CPAs + Advisors in St. Louis.
The pandemic was tough, but not understanding regulations that affect your association finances can make life tougher. To keep your association thriving, be mindful of recent pandemic legislation, federal and local tax laws, and reporting issues for conventions and tradeshows.
It’s hardly a secret that the COVID-19 pandemic had far-reaching impacts on associations in 2020. A global shift from the physical realm into the digital meant cancelled tradeshows and conferences, ticket refunds, cancellation fees, and more. This put extra financial strain and uncertainty on associations just as professionals in all industries were looking for networking, support, and connection more than ever before.
As vaccines are distributed and the professional world is finally looking towards a more balanced future, the light has begun to peek through the end of the tunnel. This means more opportunities for associations to provide value to members and boost their financial recovery, but there are still several considerations to make in collaboration with certified public accountants (CPAs) and advisors.
Like most organizations, associations were no strangers to financial uncertainty amid the pandemic. Lost meeting and convention registration fees created cashflow issues and left more than 65 percent of association leaders projecting a revenue loss of one quarter of their total budgets or more. On top of this financial loss, associations faced amplified cybersecurity and relationship management concerns as previously in-person events turned virtual. As your association forges ahead in 2021, below are the issues that your auditors and accountants want you to consider.
In late December 2020, a new COVID-19 relief bill was signed into law. The Consolidated Appropriations Act (CAA) is over 5,000 pages and contains provisions to fund government operations, provides economic support to individuals and businesses, and includes extensive tax law changes.
Your association will need to rely on your accountants and attorneys to understand how sales and use tax impacts your financial planning this year and mitigate any overlooked risks in these areas.
Among the key provisions for associations is the expansion of Paycheck Protection Program (PPP) loan eligibility to qualified 501(c)(6) organizations. Another significant provision focuses on the changes to the Employee Retention Tax Credit that was part of the original Coronavirus Aid, Relief, and Economic Security (CARES) Act. After helping their charitable nonprofit clients apply for first-round PPP loan funding in 2020, accountants are already well-versed in the program and can help your association apply for additional funding this year.
Each state may treat associations differently from a tax perspective, so the localized knowledge of your accountants and CPAs will be invaluable in determining your potential tax liability. Some nonprofits may be nontaxable on their purchases and taxable for their sales, or vice versa, while some states will treat both sales and purchases as either taxable or nontaxable.
There are many factors that come into play when your association is paying or collecting sales tax, including your location, your primary activities, and your classification. Also, many states are still evaluating and changing rules with regard to activities conducted at conferences and tradeshows as a result of the landmark Wayfair vs. South Dakota decision. Your association will need to rely on your accountants and attorneys to understand how sales and use tax impacts your financial planning this year and mitigate any overlooked risks in these areas.
Associations also need to consider ongoing regulatory and compliance matters—especially as they pertain to virtual meetings and shows. The IRS has long-standing guidance on Qualified Convention and Trade Show activities conducted by associations. Whether or not these activities are considered to be unrelated business income (and potentially subject to tax) depends on a number of factors, including the purpose of the event, sponsorship, and more. In the past, this typically meant that associations’ convention and tradeshow activities were considered nontaxable, while wholly web-based activity did not constitute a true annual meeting or tradeshow and therefore could be subject to UBI tax.
Since these guidelines were established nearly 16 years ago and could not have anticipated the required shift to virtual activity in 2020—or the continued movement toward hybrid events in 2021—it is unknown if the IRS will publish additional guidance in this area that could create new tax considerations for your association surrounding events. You should review your individual circumstances with your accountants and consultants to determine the proper compliance with existing laws and regulations—and to stay informed about possible changes.
While the initial rush of strategic pivoting and the recurring uncertainty of the pandemic may be inching closer to the proverbial rearview mirror, associations must still approach this year with a financially strategic mindset—albeit one that is more grounded in optimism than ambiguity. As your association continues to navigate a now-hybrid landscape, regulation and compliance are at the forefront of your accountants’ minds. By relying on their guidance, you can seek out new funding opportunities, ensure a stable hold on your compliance and tax liability, and continue creating valuable connections for your members.