Financial practices for units: Non-profit status and sales tax

To continue our series of articles on unit finance, we’ll discuss a couple issues that can be complex: whether your unit holds non-profit status and its implications, including sales tax liability.

Bear in mind that I am not an accountant or tax lawyer. The information presented here is from personal experience. Also, rules and regulations may vary from state to state. As always, check with your council, chartered organization or a professional if you want definitive advice.

Non-Profit Status

Units (packs, troops, crews, etc.) in the Boy Scouts of America are not legal or financial entities unto themselves. They don’t stand alone or belong to the local council but rather are owned, or chartered, by a civic, religious, educational or even business organization. While there is an Internal Revenue Service group exemption for the BSA, this applies only to the national council and the local councils it charters – not to individual units.

Many, if not most, packs, troops and crews are chartered to non-profit organizations, such as churches, schools or service clubs. Since unit assets are owned by their chartered organizations, the CO’s tax status is conferred upon the unit. A unit should not need to obtain separate non-profit status from the IRS unless it has formed its own chartered organization established as a legal entity (such as “Parents of Pack 999”). In that case, the organization (not the unit, since a unit is not a legal entity) should file a Form 990 with the IRS.

If your chartered organization happens to be something other than a non-profit in the eyes of the IRS, then the tax benefits that would accrue to non-profit organizations don’t trickle down to the unit. An example might be where a for-profit hospital charters a Cub Scout pack, or an outdoor equipment retailer sponsors a Venturing crew.

Tax Identification Number

Every entity has what’s known as a Tax Identification Number. You’ll need one when opening a bank account or when applying for an exemption from state sales taxes. For individuals, it’s usually a Social Security number, but for non-persons, such as corporations or nonprofits, the IRS issues a nine-digit number (of the format 01-2345678) to identify the entity. In most cases, the TIN of your chartered organization would be the one a unit would use; however, at the option of the CO, the unit could obtain its own TIN by filing IRS form SS-4, listing the chartered organization as the “responsible party” on line 7a. Under no circumstances should a unit use the personal Social Security number of one of its volunteers or members as the unit’s TIN.

Sales Tax

In states with a sales tax, it is often possible to obtain an exemption for purchases made for the unit’s own use. Again, this status passes down from the chartered organization in most cases. You will most likely need to obtain copies of the chartered organization’s sales tax license or the IRS Determination of Non-Profit Status letter and use this to request sales tax exemption from businesses you typically purchase from, such as your council service center or its Scout shop, and any outdoor equipment suppliers where you would otherwise be liable for sales tax payment. Doing so can save your unit a substantial amount of money in the course of the year, especially if you live in a state where the sales tax hovers around ten percent.

What qualifies as for the unit’s own use”? Here are some examples:

  • Awards and insignia for rank advancement, achievements or activities
  • Equipment such as tents, stoves, cooking gear
  • Handbooks and training materials when held by the unit for general use
  • Hospitality expenses for unit functions (banquets, courts of honor) such as food, paper goods, catering, etc.
  • Materials purchased for service projects

Some things that likely don’t qualify include uniforms, publications for personal use (like Scout handbooks), or personal gear such as packs and hiking boots.  The applicability of these may vary from state to state. (However, a volunteer may be able to take an income tax deduction for some expenses incurred in the course of his or her volunteer service, like uniforms and mileage.)

Your first contact to obtain guidance on these matters should be the chief financial officer of your chartered organization. Ask your chartered organization representative for an introduction. Your council’s finance director may also be of assistance. You may also be fortunate enough to have an accounting or tax professional among your parents. And you’ll find an information sheet from the BSA which briefly covers unit financial matters.

In the next installment, we’ll discuss new-age financial products that your unit might want to consider using. As always, if you have any questions, you can leave a comment or send me an e-mail and I’ll do my best to answer it for you.

Previous articles in this series:

Image: courtesy of Ken Teegardin / (Flickr Creative Commons license)

This post first appeared on Bobwhite Blather.
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