The 501(c)(3) designation protects Friends from paying income taxes and makes the organization eligible to receive tax-exempt donations. However, it does not exempt the organization from paying all taxes.
Chapters are not exempt from paying sales tax for goods and services purchased for most uses. State and local taxes apply to any purchases made by the organization for any items that will not be resold. Even if a purchase is made for the direct benefit or use of the site supported by the chapter, sales tax still must be paid.
Unlike some charitable organizations, Friends is not considered tax-exempt for the purposes of state and local sales taxes.
Sales tax must also be charged on any items sold by chapters. Of course, there are a few exceptions but for the most part, sales tax must be collected and paid to the state of Georgia. There is, however, no sales tax due on services.
For example, let’s assume a chapter helps to host a Fall carnival at the site. Admission to the carnival is $2.00 per person. The carnival has great games and programs for the guests. In addition, Friends also sets up a table to sell T-shirts to commemorate the event. For this event, the chapter would not collect sales tax for the admission fee (as it is considered a service) but should collect the appropriate state and local sales taxes on the T-shirts.
For merchandise sales on site, the consignment process outlined in a previous section is the best way to ensure sales tax is collected and payed appropriately.
While the organization is exempt from paying income taxes, it is not exempt from filing a tax return. Because the organization is structured as a parent organization with chapters, only one return is filed for the entire organization. Chapters submit financial information annually which is rolled up and consolidated with all the chapters around the state into one return for the entire organization. A chapter is not responsible for filing any documents with the IRS directly. All tax documents and filings are completed through the Statewide Friends organization.