Case Study

Take the case of the Maine Lobster Festival, a nonprofit organization that holds an annual event where the proceeds are donated to local civic projects. The 68-year-old, all volunteer organization had assumed it was exempt from sales taxes. After decades of not paying taxes, they discovered that sales taxes were required as well as a sales tax certificate. Not knowing the nonprofit accounting tax laws cost this nonprofit thousands of dollars in back sales taxes, which had a severe impact on their mission.

Nonprofit Accounting Errors Lesson -

They had assumed that as a nonprofit they were exempt from sales taxes. They only discovered the mistake after they changed accountants and their new accountant requested a sales tax certificate.

On top of this, the back sales tax was just one of three additional costs that were incurred due to not knowing the laws and requirements for conducting a sales festival using public property.

This experience underscores how much a thorough understanding of tax requirements, proper reporting and transparency are essential for a nonprofit’s survival.