Across the country, many people are wondering what can be done to help the survivors of Hurricane Florence’s deadly path through the Carolinas. While many disaster-relief organizations prefer contributions of cold hard cash to supplement their efforts, some are acceptingdonations of certain types of tangible personal property. Businesses, especially those with excess inventory on hand, may appreciate the opportunity to provide assistance in this manner, but what are the sales tax consequences of donating tangible personal property to charities?
Generally speaking, when a business withdraws an item from its inventory and uses that item for a purpose other than resale, the business owes use tax on that item. Some states, such as Illinois and Kansas, would apply this treatment to items withdrawn from inventory and donated to a charitable cause or organization. Thus, in these states, a retailer who withdraws taxable first aid supplies from its inventory and donates these items to a disaster-relief organization would owe use tax based on the amount the retailer initially paid for the goods. In this example, the disaster-relief organization would not owe sales or use tax on its receipt of the supplies. Similarly, Florida specifies that charitable organizations are exempt from paying sales or use tax on donated items, but that the donor must pay tax on the acquisition of the items unless the donor is an exempt entity itself.
Other states provide some tax exemptions for tangible personal property donated to charitable organizations. In California, retailers do not owe use tax on inventory donated to certain private foundations or charitable organizations. Examples of such organizations would be churches, organizations providing medical or hospital care, and educational organizations. South Dakota similarly exempts retailers from paying use tax on property donated without charge to a tax-exempt group.
Some states take a slightly different approach to goods donated by businesses to charitable institutions. New York provides an exemption for goods donated to a tax-exempt organization, but only for items donated by the manufacturer, processor, or assembler of the items. Thus, in New York, retailers donating inventory would be liable for use tax on the donated items. Louisiana, in contrast, provides an exemption only for specific items. There, donations of food by retailers to qualified food banks are exempt from tax, but donation of other goods is taxable to the donor.
Regardless of how you choose to contribute, it’s clear that the victims of Hurricane Florence need all the help they can get to recover from this disaster. The Federal Emergency Management Agency recommends checking with National Voluntary Organizations Active in Disaster to find a reputable organization to providing assistance in North and South Carolina.
Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: What sales and use tax exemptions does your state offer for donations to disaster-relief organizations?
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