Is a school's yearbook sale exempt from Texas sales tax if it is designated as the school's one-day tax-free sale?

Subject

School Yearbook Sale Can Qualify As A One-Day Tax-Free Sale

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9308L1253G10

Plain-English Summary

A taxpayer wrote in about yearbook sales by public and private schools, asking how the one-day tax-free sale rules for exempt organizations apply.

The Comptroller's response explains that, at the time, the Texas Tax Code allowed a nonprofit organization exempt as religious, charitable, or educational to hold one one-day tax-free sale during a calendar year. Effective August 30, 1993, that exemption was expanded to also cover exempt organizations classified by the IRS as 501(c)(3), (4), (8), (10), or (19), and — as of that same date — each chapter of a qualifying exempt organization could hold two one-day tax-free sales during a calendar year.

It is up to the exempt organization to decide which sale(s) during the year count as its tax-free sale(s). If a school designates its yearbook sale as its one-day tax-free sale, the sale is tax-free even if yearbooks are all delivered on a single day, orders were taken over an extended period, and students pick up the books over an extended period.

Sellers holding a qualifying one-day tax-free sale may accept a valid, properly completed resale or exemption certificate from the exempt organization. Public schools and nonprofit private schools that have obtained exempt educational status from the Comptroller qualify; nonexempt private schools do not qualify to hold one-day tax-free sales.

If tax was collected in error on an exempt yearbook sale, the school can seek a refund only if no tax was actually collected from the students (in which case the school itself is the one that overpaid). If the student paid the tax, the student — not the school — must be the one refunded before the seller can obtain a refund.

The letter also carries a later-added alert: under SB 862, effective 9/01/1997, the tax-free-sale exemption is limited to items sold for $5,000 or less, and any transaction over that $5,000 limit is taxable.

The letter closes with the standard caveat that the opinion is based on the facts presented, and additional or different facts could change the result.

What This Means For You

A yearbook sale can be treated as the school's tax-free day, if the school designates it that way. The exemption isn't automatic — the exempt organization has to affirmatively designate which sale during the calendar year is its tax-free sale. If a school picks its yearbook sale, the whole sale is exempt, even though orders and pickups may stretch out over weeks.

Only exempt organizations, and their qualifying sellers, get the benefit. Public schools and nonprofit private schools with exempt educational status from the Comptroller qualify. Nonexempt private schools do not qualify to hold one-day tax-free sales at all, according to this letter.

Refunds follow the money, not the entity that made the mistake. If tax was mistakenly collected on an exempt yearbook sale, a refund only flows to the school if the school itself paid the tax (i.e., no tax was collected from students). If a student paid the tax, the student has to be refunded first before the seller/school can claim a refund.

Watch the later dollar cap. The letter's ALERT notes that, effective 9/01/1997 under SB 862, only items sold for $5,000 or less qualify for the tax-free treatment in a one-day sale — anything over $5,000 is taxable regardless of the designation.

Q&A

Q: Can a school's yearbook sale be exempt from Texas sales tax?
A: Yes — if the school (as an exempt organization) designates the yearbook sale as its one-day tax-free sale, the sale is tax-free, per this letter.

Q: Does it matter that yearbook orders and pickups happen over an extended period, rather than all on one day?
A: No. The letter states the school will not be required to collect tax from the students even if orders were taken over an extended period of time, and even if students pick up the books over an extended period.

Q: How many one-day tax-free sales could an exempt organization hold per year under this letter?
A: One per calendar year under the Tax Code as it stood at the time. Effective August 30, 1993, each chapter of a qualifying exempt organization could hold two one-day tax-free sales during a calendar year.

Q: Which organizations qualify for the expanded exemption as of August 30, 1993?
A: Nonprofits exempt as religious, charitable, or educational, plus organizations classified by the IRS as 501(c)(3), (4), (8), (10), or (19), per the letter.

Q: Do nonexempt private schools qualify to hold one-day tax-free sales?
A: No. The letter states nonexempt private schools do not qualify to hold one-day tax-free sales.

Q: Who gets the refund if tax was mistakenly paid on an exempt yearbook sale?
A: It depends on who paid. The school can obtain a refund only if no tax was collected from students and the school itself paid the tax in error. If a student paid the tax, the student must be refunded first before the seller can obtain a refund.

Q: Is there a dollar limit on the tax-free sale, according to this letter?
A: Yes, per a later alert added to the letter: effective 9/01/1997 under SB 862, the tax-free treatment is limited to items sold for $5,000 or less; any transaction exceeding $5,000 is taxable.

Original ruling text

ALERT: SB 862, effective 9/01/1997, limits the tax-free transactions to an item sold for $5,000 or less. Any transaction exceeding the $5,000 limit will be taxable.

August 24, 1993

Dear ***:

Thank you for your letter concerning yearbook sales by public and
private schools.

Currently, the Texas Tax Code allows a nonprofit organization that is
exempt as religious, charitable, or educational to hold a one-day
tax-free sale during a calendar year. Effective August 30, 1993, the
exemption will be expanded to include exempt organizations classified
by the IRS as 501(c)(3),(4),(8),(10), or (19). In addition as of
August 30th, each chapter of a qualifying exempt organization may hold
two one-day tax-free sales during a calendar year.

It is up to the exempt organization to designate which sales during
the calendar year are exempt and if the yearbook sale is designated,
the sale is tax-free. If yearbooks are delivered to the school on a
single day, and the school designates the yearbook sale as a one-day
tax-free sale, then the school will not be required to collect tax
from the students even if orders were taken over an extended period of
time, and even if students pick up the books over an extended period.

The seller may accept a valid and properly completed resale or
exemption certificate from an exempt organization that is holding a
qualifying one-day tax-free sale. Public schools and nonprofit private
schools that have obtained exempt status as educational from the
comptroller would qualify. Nonexempt private schools do not qualify to
hold one-day tax-free sales.

A school may obtain a refund for an exempt yearbook sale if no tax was
collected from the students and the tax was paid in error by the
school on the one-day tax-free sale. If tax is paid by the student, it
is the student who must be refunded the tax in order for the seller to
obtain a refund.

This opinion is based on the facts presented. If there are additional
or different facts, the opinion may change.

You may call me toll free at 1-800-531-5141, ext. 5-0030. The direct
line is 512/475-0030. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Adrninistration Division

NOTE: Previous Accession Number 93070081L.2 and/or 9307081L