Sunday, January 17, 2010

THE RIGHT THING: IT'S CRAFTY - BUT IS IT RIGHT?

A reader in Ohio is an active member of the craft group at her senior center. As a member of the group, she regularly purchases craft supplies for herself from a local business - and gets a 30-percent discount, so long as one of the specially assigned members of her craft group vouches for her purchase. She pays no sales tax, since the senior center is a not-for-profit entity that provides services to senior citizens and is therefore tax-exempt.

"I recognize that a business may sell its products to anyone at any price it likes," she writes, "but I think that, when individuals of a tax-free entity purchase materials for their own use, they should pay the sales tax."

She has raised her concerns with the people who run the craft group, only to be told that it is a long-standing practice that no one wants to address for fear of losing the discount.

"What do you think?," she asks.

My reader is correct that, while a business can decide how to offer discounts, it has to follow state regulations when it comes to collecting sales tax. That decision is made by the state, not by the individual business. Thus, while it's entitled to set its prices as it sees fit, it has to collect the appropriate sales tax for whatever it charges her.

Unless, of course, the purchase is made on behalf of a tax-exempt organization such as the senior center.

The heart of my reader's question is, is it legitimate for her to take advantage of the senior center's tax-exempt status in buying materials for herself?

My field is ethics, not nonprofit tax law, so it's possible that the State of Ohio might disagree with my opinion. But I think she raises a good question, one that shouldn't be brushed off by her companions at the senior center. Fear of losing a benefit by raising a concern about its legitimacy is hardly a strong ethical stance.

It seems to me that the central question here is what my reader is doing with the craft materials she gets at a tax-free discount price.

If she's buying them in bulk and reselling them on eBay, obviously it's an abuse of the system. It's also an abuse, though not as serious a one, if she's sharing the materials with friends who don't happen to be members of the senior center or simply using them for her own purposes.

If, however, she is using the materials for craft work that she does in connection with the senior center, I'd say it's entirely legitimate. Regardless of who technically owns the materials, they are obviously part and parcel of the group's work, and there's no reason that the senior center's tax-exempt certificate shouldn't apply.

The best way to make sure that everything is according to Hoyle would be for the senior center to purchase the materials itself, utilizing its tax-exempt status, and then resell them at cost to the members of the craft group. This approach would avoid even the appearance of abuse, and would ensure that individual members couldn't take unfair advantage of the center's status.

My reader did the right thing in raising the question with the craft-group organizers. The right thing for them to do is to examine the process to make sure that they are getting what they are entitled to - but also to make sure that they aren't running afoul of the law.

c.2010 The New York Times Syndicate (Distributed by The New York Times Syndicate)

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