Booster clubs are an excellent way to support the sports, arts, and other organizations at your school. However, you don’t want to run into any legal or monetary troubles while cheering your fellow classmates on. Alongside forgetting to file tax returns, one of the most common problems we see with booster clubs is not collecting sales tax because they didn’t know how to or they forgot. But, we want to help you avoid this all too common misstep.
Whether your booster club is a non-profit, tax exempt booster club or not, you still have to collect sales tax and submit it quarterly to the state your club operates in. In this article, we’ll explain the importance of collecting sales tax, the consequences of forgetting, and the best way to make up for any past booster club tax mistakes.
Why is Collecting Sales Tax Important?
Collecting sales tax on sold goods and services is important for two reasons. First, it is the law. Second, sales taxes are typically repurposed back into the community—meaning they help local neighborhoods thrive. Therefore, collecting sales tax keeps you out of trouble and helps support local programs, facilities, and services.
But just because collecting sales tax is important, does not mean it is straightforward. In fact, knowing how, where, and when to collect state taxes can be quite tricky, so we’d recommend thinking of your booster club like a small business. Because, in many ways, it is!
Booster clubs typically make and sell goods, both in-person and online, meaning they’re subject to collecting sales taxes, just like small businesses. Small business owners would probably all agree that navigating collecting sales taxes is both important and confusing. However, there are many resources to help, such as:
- org’s Comprehensive breakdown of Small Businesses and Sales Taxes
- Houston Chronicle Small Business Department’s article: “Reasons for Sales Tax”
- Business News Daily’s guide to collecting sales tax on E-Commerce
- Booostr’s article “How to avoid Booster Club Tax Mistakes in reporting to the IRS”
- Tax Foundation’s State and Local Tax Rates PDF for 2020
Those guides can help your booster club to understand your state’s specific legislature and procedures for collecting sales taxes and the penalties of not collecting sales tax.
Not Collecting Sales Tax Because You Forgot or Didn’t Know
You may be in luck, but only if your booster club’s nexus operates out of Delaware, Hawaii, New Hampshire, Oregon, or certain parts of Alaska and Maine where small businesses are not required to collect sales tax.
Otherwise, if you live in one of the other forty-five states, D.C., or Puerto Rico, you’re going to want to register with your state’s taxing agency. (And, while it’s unlikely that you’ll need to, it may be worth checking out the total amount earned from out-of-state sales to see if you must register in bordering states as well.) Then determine the amount of sales tax corresponds with each item or service you sell.
Not collecting sales tax results in some serious penalties. As Taxify writes,
“You could be forced to pay all uncollected tax out of pocket. If you have a sales tax obligation but aren’t remitting tax to the state, it’s only a matter of time before you’ll be required to pay what you owe.”
The IRS keeps meticulous tax records and will very likely notice any deviances and track down, penalize, and potentially close the businesses of non-compliers.
The authors of Tax Problem Solvers write the specific expectations and consequences of not collecting sales taxes here:
“As a business, you are not only required to collect sales tax on the goods and services you provide your customers, you are also required to report what you have collected and forward those sums to the appropriate state agency. If you do not, you are liable for repayment or additional damages that include fines and extra fees. Besides the fact that it’s outright fraud, even if the crime isn’t malicious, the consequences are significant – the state can seize a company’s assets when they don’t remit.”
And we don’t want that happening to your booster club.
Lastly, there is one potential tax-related loophole your booster club may take advantage of, if it is a registered non-profit. According to tax experts at debt.org, your booster club may be able to avoid paying sales tax, when buying specific items, “It is the responsibility of the buyer to prove eligibility for exemption by presenting a valid certificate that documents the buyer’s permission to waive sales tax payment.” However, you may want to read here to see if this opportunity applies to your booster club. Furthermore keep in mind that your nonprofit status only exempts your organization from paying sales tax on goods purchased. Your booster club must still collect sales tax on all applicable goods it sells – regardless if it is a nonprofit or not.
How Can We Fix A Non-collection of Sales Tax Situation?
Don’t panic. Like we said, this is a very common problem with booster clubs. And, it’s redeemable. Cherry Bekaert sales tax law firm writes simply that you have two options to solve not collecting sales tax: First – start collecting sales tax immediately and second either find and bill past customers or pay the missing sales taxes yourself.
And when it comes to accounting, Avalara, a firm of international tax experts, provides this excellent five step guide to reconciling your sales tax payable account:
- Identify the balance of your account at the beginning of the accounting period.
- Add the total amount billed to customers.
- Subtract the total sales and use tax paid, either electronically or by check, before timely filing discount.
- Reconcile this amount with the current balance of your sales tax payable account.
- Re-class any discount or rounding balances to the proper general ledger account.
Once the missing funds have been properly estimated, paid, and accounted for your Booster Club should be out of the woods.
Running a booster club can be a blast, but you want to make sure you’re properly abiding by tax regulations. Your booster club should consider itself a small business and use resources made for small businesses to make sense of tax laws.
Not collecting sales tax can result in IRS involvement and being forced to pay the estimated missing sum out of pocket. So, if you’re running a booster club now that does not collect sales taxes, make sure to register with your state’s taxing agency and begin the process as soon as possible.