Section 36 of House Bill 487, which goes into effect July 1, contains language that imposes sales and use tax on certain services. Due to a recent ruling by the Kentucky Supreme Court, many nonprofits will now be required to collect and remit sales tax.
On March 22, the Kentucky Supreme Court upheld that the exemption for charitable institutions under Section 170 of the Kentucky Constitution applies only to ad valorem (property) taxes and not sales and use tax.
Listed below are some examples of commonly seen nonprofit activities:
- Membership dues – Taxable
- Admissions to events (fundraising, museum, theatre productions, art exhibits and other entertainment events) – Taxable
- Fees to participate in team sports - Taxable
- Daycare and Summer Camps – Exempt- Based on informal guidance from the Department of Revenue, as these are considered educational/instructional services.
- Items sold at charity auctions – Taxable
- Admissions to historical sites – Exempt–Pursuant to KRS 139.482
As some of the language in HB 487 can be vague, we are still awaiting further clarification on several items. For example, we do not yet know if sales tax applies to registration fees for charity runs/walks or raffle ticket sales. We will provide further updates as this information becomes available.
If you have questions related to your specific organization, please feel free to reach out to us to discuss at 1-866-287-9604.
The Department of Revenue has also set up a website that features guidance information, answers to frequently asked questions and also allows organizations to submit their own questions. The website can be found at taxanswers.ky.gov.