Every year, the Children’s Charity of the Bluegrass raises about $500,000 from its annual fundraising golf tournament.
But under Kentucky’s new tax law, a 6 percent sales tax on numerous services also applies to all tickets sold for fundraisers that charities and churches put on. The organizers will have to decide if they will let participants pay the tax on tickets, or whether they will take the hit.
Either way, “that’s $30,000 less we’ll be able to give to children’s charities,” like the Lexington Hearing and Speech Center or The Nest, said Andy DeMoss, the Children’s Charity treasurer. This year, the golf event took place on June 18 so it escaped the penalty, which took effect July 1. But next year, it could get a double hit, paying the tax on renting the golf course as well.
Nonprofits around Kentucky are still trying to figure out exactly how the law applies to them, said Danielle Clore, executive director of the Kentucky Nonprofit Network. The new tax law was approved by the legislature in the spring.
“Nonprofits have a great deal of anxiety and frustration from all levels,” Clore said. “We’re hearing from organizations that they’re confused how it will impact them.”
For example, the Department of Revenue has said the first $1,000 of income at fund raisers can be exempted, but it’s confusing as to exactly what that entails.
“A lot of organizations just don’t want to fool with it and are asking if they should simply not hold events,” Clore said.
Others are automatically adding the tax as they sell tickets. For example, the online ticket sales page for a charity polo tournament and dinner on Sept. 7 to benefit the Fayette Alliance and the Markey Cancer Foundation includes a paragraph alerting people that the 6 percent sales tax will be added to their purchase and sent directly to the state.
University of Kentucky officials sent out a campus-wide email earlier this month to let people know that every event, from the gala dinner held at the UK Art Museum to a simple departmental fundraiser, will be subject to new rules.
The broader tax bill applied for the first time a 6 percent sales tax to numerous services, including car repair, landscaping services and fitness gyms. The law also applies to entertainment sectors such as concert and play tickets, and entrance fees to bowling alleys and golf courses. But it’s only been recently that nonprofit organizations realized the law would also apply to their events.
Relief could be in sight next year. A group of legislators have pre-filed a bill to repeal the section of the tax law that applies to nonprofit organizations.
“There was clearly never any intent for a tax on these types of purchases, but unfortunately the Department of Revenue has interpreted HB 366 differently,” said House Speaker Pro Tempore David Osborne, R-Prospect, the main sponsor of the pre-filed bill. “What this bill does is clarify a portion of the law so that admission to events sponsored by these organizations are not taxed in the future. We will continue to evaluate other concerns and misinterpretations and make sure the bill is being interpreted as the legislature intended.”
An analysis by the Legislative Research Commission found that tangible items sold by charities had always been subject to tax, but the Department of Revenue had not enforced it until a Supreme Court decision in March found that nonprofits were not exempt from sales tax. The tax bill did not specifically include nonprofits, but it doesn’t exempt them either, so the Kentucky Department of Revenue has interpreted the law to include them. Osborne’s bill would change that language.
The Department of Revenue has been holding a series of webinars on the topic and its website has answers to frequently asked questions, said Richard Dobson, executive director of the Office of Sales and Excise Taxes.
“We’re trying to be responsive,” he said. “It’s hard when changes as big as this one come through.”
The Ashland Lawn Party, held every June, is the biggest annual fundraiser for Ashland, Henry Clay’s estate. Jim Clark, Ashland’s executive director, said it’s not just next year’s tickets that could see a tax, but the numerous items in their silent auction at the event.
“This year, that would have been an $8,000 price tag all together,” he said. Ashland is lucky because as a historical attraction, entrance tickets are exempted from the tax. But, Clark said, “there seem to be a lot of unintended consequences” with the law.
On top of that, changes in federal tax law could hurt charitable giving because the standard deduction has been doubled, so fewer people will itemize and claim charitable deductions. That could hurt smaller donations.
“I’m hoping people’s civic mindedness and generosity will continue,” Clark said.