Arkansas has passed a law change with a revision to the rules about when an exempt organization must collect sales tax if it considered to be competing with a for-profit business. This act was H.B. 1221, which will be effective 90 days after the adjournment of the 2017 Arkansas Legislature.

As the previously posted blog described below, the rule is still that the sale must be conducted by a member of the organization, proceeds go to the organization, and the sale must not be held more than three times a year. The change is that the requirement of the dominant motive of the purchasers is the making of a charitable contribution has been removed.

The earlier blog is reproduced below, with the change redacted:

The Arkansas Department of Finance and Administration has recently issued several legal opinions concerning sales or use taxes for nonprofit (charitable) organizations. This blog summarizes and communicates the applicable Arkansas laws for our nonprofit clients and friends of the firm.

Sales of tangible personal property and certain services are subject to Arkansas gross receipts (sales) and compensating use tax. Arkansas does not have a general sales tax exemption for sales to nonprofit organizations. When a nonprofit organization purchases items in Arkansas, tax applies unless the items are purchased for resale (in which case, tax would be charged on the subsequent sale to the customer) or the organization is specifically listed as exempt under Arkansas law. Those exempt organizations can be found in Arkansas GR-31 on pages 71 and 72.

For sales made by a charitable organization, Arkansas provides an exemption from tax except where the organization may be engaged in business for profit or unless the sale competes with sales by for-profit businesses. A sale does not compete with a for-profit business where it is conducted by a member of the charitable organization (not by a franchisee or licensee), all proceeds derived go to the charitable organization, the sales transaction is not a continuing one and is not held more than three times a year, and the dominant motive of the purchaser is the making of a charitable contribution. In other words, the acquisition of the item being sold should not be the primary motive of the purchaser. This law can be found in GR-39, on pages 83 and 84 at the above link.

In AR opinion 20140807, the organization was selling DVD packages throughout the year. The state deemed the desire to purchase the DVD package to be the primary motive of purchasers rather than the desire to make a charitable donation. Also, the DVD package was offered for sale all year long rather than the sales being limited to three times a year. The sales were considered to compete with for-profit businesses. The organization was required to register, report, collect, and remit tax to Arkansas on the sales to customers. Note that this opinion is only applicable to the specific taxpayer and circumstances described in the request for ruling.

There are general exceptions to the above rule about competing with for-profit businesses, such as sales by a nonprofit hospital or its cafeteria or gift shop, sales at a county fair, and sales at concession stands operated by nonprofit little league or similar athletic associations. Fireworks sales are always deemed to compete with for-profit businesses.