Does a tax-exempt nonprofit have to collect sales tax on items sold at its annual charity auction held at a commercial auction house?

Plain-English summary

A New York not-for-profit corporation ("Nonprofit Inc.") holds an Exempt Organization Certificate and wants to raise money with a charity auction. It will solicit donated property from the public, advertise in an auction trade publication, and run the auction with a professional auctioneer, either on public-school grounds or at a commercial auction house. Its law firm, Satterlee Stephens Burke & Burke, asked whether the nonprofit must collect sales tax on the auction sales.

The Department said no tax is due:

• Under § 1116(a)(4), sales by a qualifying charitable/educational organization are generally exempt.
• The exception in § 1116(b)(1) taxes retail sales through a "shop or store" the organization operates.
• But under § 529.7(i)(2), a "shop or store" means a place selling goods with regularity, frequency and continuity. A once-a-year charity auction of donated property is not a shop or store. The regulation's own Example 1 says an exempt organization auctioning off some of its automobiles is not subject to tax.
• Holding the auction at a commercial auction house or on school grounds, or hiring a professional auctioneer, does not convert the receipts into taxable sales.

So Nonprofit Inc. does not have to collect sales tax on the auction.

What this means for you

An occasional charity auction of donated goods isn't a "shop or store"

The line that makes an exempt organization start collecting sales tax is operating a shop or store — selling with regularity, frequency and continuity. A periodic fundraising auction of donated property falls on the exempt side of that line.

Using outside professionals and venues doesn't forfeit the exemption

Renting a commercial auction house, using a school as the site, or engaging a professional auctioneer are all fine. The Department expressly said none of these facts makes the receipts taxable. What matters is the nature and regularity of the selling activity, not who runs it or where.

The exemption is for the exempt organization's own sales — mind the boundaries

This covers Nonprofit Inc. selling donated property at its own fundraiser. Running an actual store, or selling in a regular, continuous way, could cross into § 1116(b)(1) taxable territory. And a charity is still generally the taxable purchaser when it buys taxable goods and services for its own use.

Common questions

Q: Does a 501(c)(3)-type charity charge sales tax at its fundraising auction?
A: Not on an occasional auction of donated property. That is not a "shop or store," so § 1116(a)(4) keeps it exempt.

Q: Does hiring a professional auctioneer or using a commercial auction house change that?
A: No. The Department said those facts do not make the auction receipts taxable.

Q: When would an exempt organization's sales become taxable?
A: When it makes retail sales through a shop or store it operates — a place selling goods with regularity, frequency and continuity (§ 1116(b)(1); § 529.7(i)(2)).

Citations and references

Statutes and regulations:

• Tax Law § 1116(a)(4) — exemption for charitable, religious, educational and similar organizations
• Tax Law § 1116(b)(1) — retail sales through an organization's shop or store are not exempt
• 20 NYCRR § 529.7(i)(2) — definition of "shop or store"; auction example (donated automobiles not taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a91_27s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-91 (27)S
Sales Tax
March 7, 1991

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S910117A

On January 17, 1991 a Petition for Advisory Opinion was received from Satterlee Stephens
Burke & Burke, 230 Park Avenue, New York, New York 10169-0079.
The issue raised by Petitioner, Satterlee Stephens Burke & Burke, is whether a not-for-profit
corporation not otherwise subject to sales tax pursuant to Section 1116(a)(4) of the Tax Law is
required to collect sales tax with respect to an annual auction held at a commercial auction house.
A corporation organized under the New York Not-for-Profit Corporation Law ("Nonprofit
Inc.") has duly obtained an Exempt Organization Certificate from the Department of Taxation and
Finance. Nonprofit Inc. proposes to raise funds for its charitable purposes through a charity auction.
Nonprofit Inc. will solicit donations of property from the general public approximately two months
before the auction. Nonprofit Inc. will place advertisements about the auction in an auction trade
publication. The auction will be conducted by a professional auctioneer. The items available for
auction will be previewed on the day of the auction. The auction will be held on the grounds of a
public school or at a commercial auction house.
Section 1116(a)(4) of the Tax Law provides that:
(a)
Except as otherwise provided in this section, any sale or amusement
charge by or to any of the following or any use or occupancy by any of the following
shall not be subject to the sales and compensating use taxes imposed under this
article:
*
(4)

*

*

Any corporation, association, trust, or community chest, fund or
foundation, organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary or educational
purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the provision
of athletic facilities or equipment), or for the prevention of cruelty to
children or animals, no part of the net earnings of which inures to the
benefit of any private shareholder or individual, no substantial part of
the activities of which is carrying on propaganda, or otherwise
attempting to influence legislation, (except as otherwise provided in
subsection (h) of section five hundred one of the United States
internal revenue code of nineteen hundred fifty-four, as amended),

-2­
TSB-A-91 (27)S
Sales Tax
March 7, 1991
and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on
behalf of any candidate for public office;
Section 1116(b)(1) of the Tax Law provides in part that:
(b)

Nothing in this section shall exempt:
(1)

retail sales of tangible personal property by any shop or store operated by an
organization described in paragraph (4), . . .of subdivision (a) of this section;

Section 529.7(i)(2) of the Sales and Use Tax Regulations provides in part that:
(2)
Retail sales of tangible personal property made by any shop or store
operated by an exempt organization described in section 1116(a)(4), . . .are subject
to the sales and use tax. A shop or store as used in this section includes any place or
establishment where goods are sold from display with a degree of regularity,
frequency and continuity as well as any place where sales are made through a
temporary shop or store located on the same premises as persons required to collect
tax. . . .
Example 1:

An exempt organization owning a fleet of automobiles decides to sell,
at auction, a number of the automobiles. The automobiles sold at the
auction are not subject to sales or use tax.

In the instant case Nonprofit Inc. is an organization exempt from the imposition of sales tax
pursuant to Section 1116(a)(4) of the Tax Law and thus any sales made by it of property that has
been donated to it are not subject to sales tax unless it is engaged in the retail sale of tangible
personal property by any shop or store operated by it as provided for by Section 1116(b)(l) of the Tax
Law.
The sale at an annual auction by Nonprofit Inc. of property donated to it does not constitute
a retail sale through a shop or store in accordance with Section 529.7(i)(2) of the Sales and Use Tax
Regulations. The fact that the annual auction may be held at a commercial auction house or on the
grounds of a public school or that Nonprofit Inc. may hire a professional auctioneer to conduct the
auction does not cause the receipts from the property sold at auction to be subject to sales tax.

DATED: March 7, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.