I suspect this is wrong, but I'm not an expert at all on TN state tax regulations. It's certainly wrong for federal 501c3 status.
Logically, it almost has to be wrong, as there are very large nonprofits in TN who i'm sure raise far, far more than $20,000 and still retian their nonprofit status.
Definitely wrong for federal. I'd call the secretary of state's office in TN, if you want the best source.
The information came from a tax preparer in our area (TN). The way it has been explained to me is: if we have more than 2 fundraiser in a school year and they earn more than $10,000 each, we have to go back and pay sales tax on everything we do all year long. We cannot operate on $20,000 per year so it sounds like we cannot qualify for tax exempt status.
Sales tax is a state issue, so the Feds wouldn't be likely to have any comment. And there are no federal rules limiting the number of fund raisers you can have or how much you can raise.
I agree with your PTA rep. As I understant it, you were already paying sales tax on the bookfair sales. It shouldn't have been counted as one of your two freebies.
And a note on this - if your state limits how many tax free fundraisers you can have, be sure to find out what is taxable in your state. For example, if our PTO held a Spaghetti dinner that was prepared by volunteers, the food would not be taxable. Even if that was our biggest fund rasier of the year, we wouldn't count it as one the two tax exempt ones because there are no taxes due in the first place. On the other hand, if it were professionally catered, we would owe sales tax (unless we claimed it as one of the two).
One last word - people all over your state file sales tax returns every year from the tiny Mom & Pop business to huge corporations. Paying sales tax isn't a big deal. You keep track of sales, multiply it by the appropriate percentage, and send in your payment (probably annually) with a check. Very simple.
We are trying to go to PTO in our school and that has been a question that we have had a hard time figuring out as well. The best info I can get for the state of Illinois is the same as Texas. There doesn't seem to be any cap on the amount just the number you can have. Scholastics requires us to charge sales tax and we used it as our second fundraiser thinking that we could only have two. PTA reps tell us that we could have used that as our third since the tax was already being paid. What I wonder though is what does Federal say about all of this?
By the time you consider federal laws, state laws, school district policy, principal decisions, and plain old tradition, you'll discover many "rules" that are in fact fiction - either completely or a distortion of one of the above.
I agree with the others. This sounds like either 1) misinformation 2)something connected to STATE rules about exemptions - usually related to sales tax exemption.
For example - in Texas a non-profit that has received state tax exemption is exempt from collecting/remitting sales tax on two fundraisers per year. They don't lose status if they have more - they just have to pay the sales tax on them. This "rule" gets distorted unbelievably by well intentioned people who don't understand it.
Give us more info and we'll try to help you untangle it.
