Yesterday, March 26, 2019, Governor Bevin signed House Bill 354, which the General Assembly passed earlier this month. This legislation reverses the dramatic negative effect on many nonprofits caused by last year’s tax bill and the Kentucky Department of Revenue’s interpretation of it. The applicable provisions of House Bill 354 became effective upon the Governor’s signature meaning that the changes are effective today!
To whom does the new law apply?
The new law exempts from tax sales of admissions and most fundraising activities by nonprofit educational, charitable, or religious institutions that are exempt from income tax pursuant to Section 501(c)(3) of the Internal Revenue Code, and provides the same exemptions for “nonprofit civic, governmental, or other nonprofit organizations.”
For 501(c)(3)’s, House Bill 354 restores the law related to sales of admissions to the understanding of the law prior to July 1, 2018. The bill also broadens the law to allow for the vast majority of fundraising activities to be exempt from sales tax. The exemptions for the second group of nonprofits – “nonprofit civic, governmental, or other nonprofit organizations” – is new.
House Bill 354 does not provide a definition for this second group, but those surrounding the drafting process related to the bill understand the provision to apply to other groups covered by Section 501(c) of the Internal Revenue Code, such as civil leagues, business leagues, chamber of commerce, social and recreational clubs, and fraternal beneficiary societies and associations.
Tell me, again, what the law covers.
The law exempts from sales tax:
- Admissions to events and activities sponsored by nonprofit organizations, and
- Sales at fundraising events, with the exception of:
- Sales related to the operation of a retail business, including, but not limited to, thrift stores, bookstores, surplus property auctions, recycle and ruse stores, or any ongoing operations in competition with for-profit retailers.
When does the law become effective?
The law became effective upon the Governor’s signature yesterday, March 26, 2019. This means you can stop charging sales tax on admissions and auctions at fundraising events. However, be sure to remit any sales tax you have already collected, and no refunds are allowed for prior periods in which sales tax was collected. Furthermore, we don’t recommend closing your sales tax account right away. The Department of Revenue will be issuing guidance on how to proceed in the near future.
If you have any questions, please contact your Dean Dorton advisor or Erica Horn at ehorn@deandorton.com.
