Revenue Administration Division Comptroller of Maryland November 8, 2010 How the Sales Tax Affects Schools

Purchases and Exemption Certificates

How are sales tax exemption certificates used? Sales tax exemption certificates may be used to purchase materials and supplies to be used to carry on the work of the individual schools and the school board. State of Maryland Comptroller of the Treasury Sales and Use Tax Exemption Certificate Account Number Name Expiration Date Governmental No Expiration Date

What are some examples? Examples include:  Books, magazines, periodicals.  Certificates, trophies, plaques.  Office supplies, equipment, maintenance contracts.  Classroom supplies.  Janitorial supplies.  Gym equipment.  Lockers, furnishings.  Meals during business meetings.

What is required to make exempt purchases? A vendor is required to see an actual copy of the certificate. The purchase must be made with school funds, such as cash from the petty cash fund, school check, school credit card, or county issued credit card. The purchased item must become the property of the school.

May the PTA/PTO use the school’s certificate? Yes - if purchasing items that will be donated to the school and become the property of the school board. No - if purchasing items for PTA/PTO use, even if used in fundraising activities.

Will the Comptroller issue a certificate to the PTA/PTO? No - a school may allow a representative of the PTA/PTO to use the school’s certificate but it should have procedures in place to ensure that the certificate is being used appropriately. The PTA/PTO may use its own cash, check or credit card to make the purchase.

May an individual teacher use the school’s exemption certificate? Yes - if making purchases for the classroom using school cash, school check, or school credit card. This may include supplies, videos, maps, calendars, etc. Continued

Individual teacher cont’d No - if making purchases using his/her own funds. To be exempt, the law expressly says that the purchase must be made with organizational funds. No - if making purchases whereby the items become the property of the individual teacher (such as a television, VCR, and furnishings - even if these items are for classroom use).

May we allow a contractor to use the certificate? No - the sales and use tax law was expressly written so that government contractors are required to pay sales and use tax to their suppliers when making purchases to fulfill a contract.

What else should I remember about exemption certificates? All schools under a county Board of Education have the same exemption number. Each school is required to contact the Board of Education for a copy of the certificate. Continued

Exemption certificates cont’d The certificate must be presented to the vendor at the time purchase is made for the exemption to apply. The certificate may be used anywhere in the State of Maryland but may not be used outside of the state.

Making Sales

What do I need to know about the sales and use tax law? Maryland law requires that sales and use tax be collected on sales of tangible personal property sold by nonprofit organizations that are not of a religious nature. The tax is imposed on sales of tangible personal property and 12 specific services, unless a particular exemption applies.

Do I need a license to make sales? Yes. Unlike the exemption certificate, which is issued to the county, each school should apply for a sales tax license to make sales. In addition, each PTA/PTO must apply as well. Continued

Sales tax license cont’d The issuance of the Maryland sales and use tax license serves a dual purpose:  It gives the authority to collect the Maryland sales and use tax and remit it to the Comptroller.  It gives the authority to make tax-free purchases on items purchased for resale, or for items that will be incorporated into something for resale.

What about sales by schools and PTA/PTOs? Sales made by the schools, the booster clubs, the parent-teacher organizations, and alumni associations are subject to the 6% percent Maryland sales and use tax. This includes fundraising activities, vending machine sales, sales at school stores, book fairs, and silent auctions.

How do I register to make sales? Complete the Combined Registration Application to obtain a sales and use tax license for the organization making the sale. Continued

Registering to make sales cont’d For a sales and use tax license, you need to complete two sections on the application:  Section A.  Section E.

Registering to make sales cont’d You must have:  Federal Employer Identification Number (FEIN).  Location address and telephone number where records will be kept.  A responsible party’s Social Security number. The officer of the nonprofit organization has a fiduciary responsibility. The number will be used only for the purposes of the Comptroller’s Office.

What about vending machine sales? The 6 percent sales and use tax must be collected on taxable sales through vending machines. The tax is computed by multiplying the gross receipts from the machine by 94.5 percent before applying the 6 percent rate to determine the tax due.

What items are taxable through vending machines? Candy, gum, and other confections. Soft drinks. Bottled water. Non-food items (with a few exceptions).

What items are not taxable through vending machines? Snacks, such as chips, nuts, pretzels, popcorn (unless they are candy coated). Milk, fresh fruit, fresh vegetables, yogurt, juice. Medications. Feminine hygiene products.

What about sales to students, staff, and faculty? The school and/or its supporting organizations are required to collect the 6 percent sales and use tax on sales to students, faculty, and staff when those items become the purchaser’s personal property. Continued

Sales to students, staff, and faculty cont’d Examples include uniforms, jackets, tee shirts, photographs, and yearbooks. Contrary to popular belief, there is no exemption because the sale is made by a nonprofit organization.

What about sales to the public? Sales, including sales of donated items made through silent auctions, made by the school or its supporting organizations (such as booster clubs and parent-teacher organizations) are subject to the tax. Candy and gift items such as candles, novelties, and decorations are taxable. Grocery items such as pizza kits, cookies, popcorn kernels, and cookie dough are exempt.

What about auction sales? Part of the proceeds from auction sales by a nonprofit organization may be tax exempt, if the proceeds are used to carry on the organization’s exempt purpose. The partial exemption applies only to the portion of the item’s sale price that exceeds the fair market value of the item sold. The taxable portion is the fair market value of the item sold.

Completing the Sales and Use Tax Return

How do I report the sales and use taxes I collect? You will be required to file a sales and use tax return on a quarterly basis unless you request a less frequent filing schedule. If you have no taxes to report for a filing period, you must still file a return by the due date. You can file your no-tax-due return over the phone by calling or online by using bFile at

How do I complete the sales and use tax form? Line 1 – Enter all sales whether they were taxable or not. Line 2 – Enter all of the tax you collected (do not take 6 percent of your sales figure). Line 4 – Enter total taxes due. Continued

Sales and use tax form cont’d Line 5 – If you are filing and paying on time, you are entitled to a discount.  If the amount on line 4 is $6,000 or less, multiply by.012 and enter this amount.  From January 3, 2008-June 30, 2011 the credit may not exceed $500. The tax, less discount, is entered on line 6. Payment of the amount on line 6 should be enclosed with the return.

Can I file online? You can file your sales and use tax return online for free, using our bFile service on our Web site

Admissions and Amusement Tax

Admissions and amusement tax The admissions and amusement tax is a local tax that is collected by the Comptroller’s Office for the convenience of local governments. Local officials set the rates and we return the revenue to the subdivisions each quarter. Continued

Admissions and amusement tax cont’d The tax is applied to gross receipts derived from a variety of entertainment, such as:  Admission to events.  Rentals or sales of sporting equipment such as skis or bowling shoes.  Sales of property during an event where entertainment is being provided.  Video games. Continued

Admissions and amusement tax cont’d The admission and amusement tax rates range from 0.5 percent to 10 percent, depending on the county and taxable activities. Rate charts are available at our website. Continued

Admissions and amusement tax cont’d Tax is imposed on the person or business receiving the money and may be backed out of the gross receipts. The Comptroller does not issue admissions and amusement tax exemption certificates because the tax is not imposed on the purchaser.

Do’s and Don’ts

Do’s Provide vendors with a resale certificate. Show the sales tax as a separate line item on the customer’s receipt. Use the rate chart provided with the license to compute the tax. Save all invoices and receipts for a four- year period. File and pay the sales tax in a timely manner to save money.

Don’ts Do not make an exempt sale unless you know the item is not taxable or you have a copy of an exemption certificate or a resale certificate.

Don’ts Do not rely on a vendor to know whether or not an item is subject to the Maryland tax when you resell the item.

Assistance Taxpayer Service Section 301 W. Preston Street, Suite 206 Baltimore, MD Telephone:

Questions?