Here is the treasurer's report on Cyberspace Communications, Inc.
finances through February 28th, 1998.
Beginning Balance $2,302.94
Credits $615.00 Member contributions
$17.00 Grex Store proceeds
$1.02 Sales Tax collected
$22.98 Miscellaneous contributions
$12.00 Silly hat fund contributions
------------
$668.00
Debits $60.00 Pumpkin Rent for March
$83.00 Electricity for February
$20.00 Innovative Concepts phone line
$477.76 Phone Bill
$168.31 Sales & Use Taxes paid to Michigan
$14.51 Bank service charge
------------
$823.58
Ending Balance $2,147.36
Our current balance breaks down as follows:
$1,968.24 General Fund
$65.00 UPS Fund
$97.86 Silly Hat Fund
$1.02 Sales tax collected
$15.24 Use Tax owed on $253.95 worth of mail-order purchases
The Grex Store activity looks like this:
Cash Stock
--------- ---------
Beginning Balances: ($273.60) $413.00
$17.00 <-- Items sold <-- ($8.50)
--------- ---------
Ending Balances: ($256.60) $404.50
We had one new member in February (gada). We are currently at 93 members,
88 of whom are paid through at least March 15th. (The others expired recently
and are in a grace period.)
I have several things to say about this month's report:
1. We would have broken even but for the unexpectedly large Use Tax we paid.
This shouldn't really have been unexpected, I guess, but it caught me off
guard. From now on I'll keep track of how much we owe. (If we become a
501(c)3 non-profit, we won't owe any at all.) See coop item 88 for a
gruesomely detailed account of our taxes.
2. I have no idea why the bank service charge is so high. I guess I'll call
and try to find out.
3. The phone bill is about $50 higher than expected because the "Mandidory
Charge per FCC order" increased by $14.62 at the beginning of the year,
and Ameritech's billing department being the well-oiled machine that it is,
we are paying for both January's and February's increase on this bill.
Also MCI was going to start charging us a minimum amount for having them as
our long distance carrier, so I had Ameritech switch our LD carrier to
"none", which incurred $10.10 in charges, plus a charge for *having* no
carrier. Sigh. I expect next month's bill (and subsequent bills) to be
about $30 cheaper than this one.
Thanks to everyone who contributed in February:
arthurp, bruin, carl, carson, coyote, danr, gada, krj, mcmud, mitton, quail,
raheim, snow, stern, one anonymous donor, and the Gathering of Grexers, who
contributed the surplus of their bill to the Silly Hat Fund.
Thanks!
If you or your institution would like to become a member of Grex, all it takes
is $6/month (or $60/year). Send money to:
Cyberspace Communications
P. O. Box 4432
Ann Arbor, MI 48106-4432
If you pay by cash or money order, please include a photocopy of some form
of ID. I can't add you to the rolls without ID. (If you pay by personal
check, we consider that a good enough ID.) Type !support for more info.
39 responses total.
Becoming a 501(c)3 will not save you sales tax exemption unless you apply for that separately, and it is tougher to get than to get 501(c)3. The state applies its own standards of what "charitable" means.
#2 was unnecessarily frosty, which was uncalled for and I apologize. When I called the Sales, Use, and Withholding Taxes Division of the Michigan Department of Treasury, the woman I spoke with told me that as soon as we obtain 501(c)3 status we are eligible to stop collecting sales tax, provided our total sales are less than $5000, and that we also need not pay Use Tax. There is a reference in the booklet that came with our tax return to a document which should clear up eligibility, and I will order it. Rane, I know you said you had to argue before a Michigan board in order to obtain exemption from taxes for a non-profit. Was that exemption from sales & Use Taxes, or from income tax? How long ago was it? I'm wondering if perhaps the law has changed since then.
Mark, at the February budget meeting you said that you had just received a $250 check as a contribution. I assume you included that in the $615.00 of "Member contributions", and that it was from the "anonymous donor". If I'm right, then did we receive $615.00 - $250.00 = $365.00 in "regular" member contributions at $6/mo in February? Or were there other "special" member contributions that month?
That $250 non-membership contribution was back in November, Dave - sorry if I was unclear at the budget meeting. It was from user andrewb. All of the money I report as "Member Contributions" is payment for memberships. (I used to call it "dues", but someone complained for some reason I can't remember now, and I changed.)
We are talking about different things. Apparently the $5000 exemption is for *collecting* sales taxes, and passing them on to the state. There was no exemption for *paying* sales tax for items we would purchase, except by getting a separate Sales Tax Exemption License. Yes, it has been some time since MKC got our License, so I would be glad to learn if what I am referring to is still true. Did the person at the Tax Division address Grex *paying* sales tax after we become a 501(c)3 organization? (MKC's exemption from paying sales tax is dated 1990, and we have received no communications indicating a change in the law.)
Ah, I see. No, I didn't ask her what it would take to get us out of paying sales tax on things we buy; I had no idea that was even a possibility. I guess when we get our 501(c)3 status, we should investigate that.
Thanx, Mark!
The license to be exempt from *paying* sales tax is highly valued by 501(c)3 exempt non-profits, and is a common negotiation with vendors. We recently went through this with Copy Max so that we would be in their computers as being exempt from sales taxes for copying. Grex also recently discovered that it had to pay sales tax for a lot of recently purchased equipment: it would have been nice to have been exempt from that tax.
That was mostly Use Tax, since most things we bought were via mail order from out of state. According to the woman I talked to, 501(c)3's are exempt from paying Use Tax. I'll get the publication on it, though.
I would be very interested in that. Is an application required to obtain the exemption? The MKC sales tax exemption certificate says in its instructions "To buy goods and taxable services without paying a sales or use tax, present:" <list follows>. That is, sales and use taxes are both covered by the state sales tax exemption. I wonder if she meant that 501(c)3's are exempt from use tax *after they apply for and obtain exemption*.
Well, it could certainly be that she was misinformed, and we ought to corroboate her information. I'll let you know when I get the publication about it.
<please link this to coop>
I asked for a link when I entered this item, but the coop fws have been off Grex for the past few days.
having done quite a bit of purchasing for a 501(c)3 tax-exempt organization, i can say that in order to avoid paying sales tax, all i ever had to do was at minimum, give the organization's tax id number, and at maximum, fill out a form at the place of business where i was purchasing, saying what the organization was, who i was and what my capacity with the org was, and what the tax id number was. that's all. i think for one particularly skeptical retailer, i had to provide a copy of a letter from the irs addressed to the organization and verifying the tax-exempt status.
That's what the *stores* do, but even at the time we managed to get our (MKC) sales tax exemption, it was not legal. The stores we applied to would not accept the form provided by the State declaring our tax exemption. They also only wanted to know our federal "tax number". The only federal number a corporation gets - profit or non-profit - is its employer identification number. The government does not issue a number identifying 501(c)3, or any other, exempt organizations. So, you are correct, other, but to the best of my knowledge it is illegal. (For other purposes we have had to provide the 501(c)3 letter stating 501(c)3 exemption, but not for sales tax...but even then, it is not legal (to the best of my knowledge) for sales tax exemption.
perhaps its illegality is of a technical nature and is uncommonly enforced? that would reconcile my experience with yours...
It appears to be uncommonly enforced. I would be interested in a definitive determination on this, and aruba is the perfect person to get it!
Both non-profit and for-profit corporations can generally get out of paying sales tax by giving a tax id number. The stipulation, at least for the for profit corporations I've worked for, is that sales tax doesn't need to be charged when the company buying something is going to resell it and charge tax on it. If a company is buying something for its own use, rather than for resale, it does have to pay sales tax. I have no idea what the non-profit rules are, although I'd been assuming that they are the same.
All commercial firms have a state tax number and buy merchandize tax free and collect tax when it is sold at retail. Non-profits can do the same thing, but this is NOT the sales-tax exempt purchasing of exempt non-profits. Non-profits that become tax exempt for *charitable* reasons do not pay sales tax or things purchased for their own use, and not for resale. There is no state tax-exempt number issued by the state for this latter, charitable-organization, tax exemption.
to clarify, there is only one number the federal government issues to corporations, and it is sort of analogous to an individual's social security number. i have seen them only in the format: xx-xxxxxxx this is what scg and i have been referring to as the tax id number.
That is what I am talking about too. It has nothing to do with being no-profit, or charitable, or 501(c)3, etc. *Every* corporation has such a "tax id" (properly called the "employers identification number").
And the E.I.N. has nothing to do with sales tax.
Nope, *every* corporation does *NOT* have an EIN. Unless the corporation will be collecting or paying federal taxes, there's little need for one. Many states use the EIN (or an obvious derivative of it) as the state tax ID number (Michigan does), so there is some connection to sales tax.
They are 2 seperate numbers, I have both for my business.
Hmmm... Well, when we applied for a sales tax license and our number came back, lo and behold it was the same as our EIN.
What are your two numbers, Patrick? Even tax exempt organizations must have an EIN .. in order to have a 501(c)3 exemption. And, as Mark says, any corporation doing business in Michigan has to have a sales tax license, for which they need an EIN. So, Walter, which corporation to your knowledge does not have an EIN (and please provide an e-mail address for their treasurer, so I can ask).
re #24: "every corporation does not have an X" does not have the same
meaning as "not every corporation has an X". pet peeve of mine,
but when you're making a point it helps to say what you mean..
By "every corporation doing business in Michigan," you mean "every corporation selling things in Michigan," right? Presumably if a corporation isn't selling anything taxable, they don't need a sales tax license.
I have a state sales tax number and a different EIN. I got the state number first, so possibly , if you have the EIN first they use that for both.
Rane, last i knew, neither the IRS nor the SSA had blanket requirements for corporations to apply for EIN's. And being exempt from taxes does *NOT* imply 501(c)(3) status (any more than being too poor to have to file a 1040 implies some special status). A corporation need not be a business. Whether it's currently legal or not, there are loads of little clubs and other organizations that are incorporated for reasons mostly of organizational convenience, and i'd happily bet that plenty of them have never filed for an EIN. With no sales, no profits, and no payroll, a club has to be quite rich to be required to file any returns at all with any tax authority. (But annual filings and a $15 (?) fee are needed by the State's corporate registration office to keep one's status as a corporation.) I also don't think that 501(c)(3) implies an EIN, but i'm less familiar with that subject. Janc? Re #28: i figured it was clear from emphasis & context. If you start a new C corporation in MI, gets an EIN, then sign up with the State for SUW taxes (sales, use, & withholding), you'll have 3 tax ID numbers - the EIN, the state sales tax license number (EIN with a single letter (geographically based, i believe)) in front of it, and State tax ID (same as the EIN). Then there's the MESC gang, with their own unrelated numbers. If you shift around the sequence, change incorporation status and ownership some, etc., you can wind up with a collection of current & former tax ID numbers, and some of the State numbers may bear no resemblence to the corresponding Federal numbers. (I do this semi-professionally, but not regularly, so anything here is +/- a few years of changes.)
People should distinguish the state sales tax license to sell stuff, for which you get a number, and the states sales tax license for buying stuff not for resale, for which you do not get a number. Shall we call these sales tax(s) (for selling) and sales tax(b) (for buying) licenses? I was incorrect that a corporation must have 501(c)3 exemption for a state sales tax(b) license: you can also be one of a number of types of organizations such as schools, health, welfare, etc. However the only category in which Grex could get a state sales tax(b) exemption is with a 51(c)3 federal tax exemption as a charitable organization. I also reviewed the application for incorporation in Michigan, and it does not require a federal EIN. However the federal govenment requires that you obtain an EIN if the corporation receives *any* money (you would need one to have a bank account, for example). The organization with which I am most familiar does not have to pay any taxes or even file a 990 tax form because it is both 501(c)3 and has no taxable income, but nevertheless it is required to file annually another form that declares that it does not have to file a 990.
Rane, when i buy for resale my sales tax # is used by my suppliers, whon i buy for my shop use i pay the taxes to the supplier. When i sell the taxable item i then pay the tax due at my next payment period.
Right. This is all sales tax(s). (Forget what s and b stand for - just distinguish the business sales tax from the charitable sales tax exemption.)
??? Sales and use taxes (on stuff sold and stuff bought but not resold) are reported and paid on the same Michigan tax forms. Resale is only one of several exemptions from sales tax, though - are you thinking of a mixed situation? Last I knew, unless a non-profit was turning over $20K/year, was mailed forms by the IRS, or hit some (rather rare) criteria, it didn't have to file ANY federal form (990EZ or otherwise). (Calling payroll rare for that small a non-profit may be optimistic.)
The MKC with an annual budget of ca. $2400 (from donations) is a 501(c)3 tax exempt corporation and each year is sent a form to file to confirm that it does not have to file a 990 form. I am only thinking of the Grex situation. It requires obtaining a license from the state to be able to buy products for its own use without paying state sales tax. It appears, though, that vendors do not understand the requirement, and issue their own procedures for tax exemption. We have had the state form, which clearly says what the vendor is supposed to do to record the sale as tax exempt, refused by vendors. I would sure like this cleared up.
I sent away for what I hope is the appropriate information publication. I'll let you all know when I get it.
Ah, 501(c)(3). I was thinking of more mundane organizations (non-deductable,
so the IRS has less reason to keep tabs on 'em).
My experience in purchasing is that every vendor has their own ideas about
sales tax collection. (Though if you deal with enough of 'em, you can
start to see natural divisions and subdivisions like a botanist looking
over the woody plants.) My suggestion would be to check out the following
scheme with the state sales tax folks:
- tell the vendor that Grex is buying the product for resale. (My
experience is that (computer-related) vendors will either take
a copy of the state sales tax license or their own (very simple,
one-page, "I promise to collect the tax myself") form.
- buy the product for resale (no sales tax paid)
- move the product from inventory to internal use. (Using Grex's sales
tax exemption to *legally* avoid paying the use tax that a normal
business/reseller would have to pay at that point.)
If legal and unobjectionable to the state tax people, this could make it
much easier to deal with vendors. (I'm somewhat sympathetic with the
vendors from my own experience in this area. Such tax-exempt/nonprofit
sales are quite rare for most vendors, and the state tax offices are
not very supportive.)
Well, first we have to get the exemption. :)
You have several choices: