Something we never talked about is the administration going on behind the scenes. With the sale of our Rescued! game, Peter, our volunteer CFO, met a new challenge this year. Below, he is sharing his experience.
Normally it is not that hard to handle the taxes and other paperwork for a small non-profit yourself. You need to file a few forms each year to stay in compliance with the federal and state regulations, but as long as your total revenue is less than $50k and you don’t have any employees I think you don’t really need a CPA. I have been doing the paperwork for Clorofil for the last 4 years without having to spend a lot of time on it. We don’t even use a tool, like quickbooks for accounting, but simply keep all the data in well organized spreadsheets.
This year however we had to start filing sales taxes as we started selling Rescued!. Based on my past experience I expected this to be easy as well,... boy, was I wrong.
If you already are familiar with sales taxes, this will not be a surprise, but if you aren’t and you are a small non-profit that wants to sell stuff, I hope this post is interesting to you. This post applies to California, but I expect things to be similar in other states with sales taxes.
First of all, if you sell things, you _really_ need a Seller’s Permit and you need to collect the correct amount of sales tax. I know some non-profits “sell” things by accepting donations in exchange, but that really is not legal…
Getting the seller’s permit is easy enough (https://www.cdtfa.ca.gov/taxes-and-fees/faqseller.htm) but the challenge starts when you need to collect sales taxes. If you have a physical location where you sell the stuff (ex. Branded t-shirts after a sanctuary tour) then the tax-rate of that location applies. However if you have an online store, you need to collect the tax of the place you ship the merchandise to. If you are small enough (<$100k sales per state) you only have to collect the taxes for your own state and not for the others. Each county and city has a different tax rate; often even different zip codes in the same city have different rates. (Here is the list https://www.cdtfa.ca.gov/taxes-and-fees/rates.aspx). In short, you really don’t want to have to look up the correct tax for every order, so you need to use a shopping solution that will automatically use the correct rate. We use Wix and Wix-stores for our website, but any major online shopping provider, like shopify, will offer the same thing. So hopefully you have charged the correct amount of taxes to your customers, and then you are ready to do the filing.
The main challenge is that in the filing you need to list your revenue for each different tax district (county and city) separately. If you sell in a lot of places that ends up being a long list. If you are fluent with the more advanced features of Excel or Google sheets you can prepare all this data yourself. Your shopping tool will probably only export the zip code and not the county, so that needs a few formulas to do the correct mapping. But then you can use pivot tables to prepare all the data you need. It will still take a while to then enter all the data in the online filing tool.
There are commercial tools to help with the filing, but they all cost quite a bit of money and add complexity, and my feeling is that if you want to go that route it is easier to have a CPA do all of the work.
The administration side of a non-profit is often not that visible, but still important to do right in order to stay on the right side of all the regulations.