Do Nonprofits Pay Sales Tax on Purchases in California?

Nonprofits in California do pay sales tax on purchases, at the same rates as everyone else. The state’s base sales and use tax rate is 7.25%, and local additions can push the total higher depending on where the purchase happens. There is no across-the-board exemption for nonprofit organizations, and federal 501(c)(3) status has no effect on state sales tax.¹ A few narrow exemptions exist in the Revenue and Taxation Code, but each one requires meeting specific conditions, and most day-to-day nonprofit purchases fall outside them.

Why 501(c)(3) Status Does Not Help

An IRS determination letter granting 501(c)(3) status means the organization does not owe federal income tax on revenue related to its exempt purpose. It says nothing about California sales and use tax, which is a separate system administered by the California Department of Tax and Fee Administration (CDTFA).² When a nonprofit buys office furniture, cleaning supplies, computers, or event decorations, it pays the same sales tax a for-profit business or individual would pay on the identical items.

Use tax follows the same logic. When a nonprofit orders taxable goods from an out-of-state vendor that does not collect California sales tax, the organization owes use tax at the same rate directly to the CDTFA. This turns up most often with online orders from retailers that lack a California presence. Nonprofits with a seller’s permit report use tax on their regular sales and use tax return; those without one can file a use tax return directly with the CDTFA or report it on their California income tax return.

The Resale Exemption

The most common way for a nonprofit to make a tax-free purchase is the resale exemption. It works the same way it does for any retailer: when an organization buys merchandise it plans to sell, the purchase itself is not taxed, and sales tax is collected later from the end customer at the point of retail sale.¹

To use it, the nonprofit needs a valid California seller’s permit. There is no fee to obtain one, though the CDTFA may require a refundable security deposit to cover potential unpaid taxes if the organization later closes.³ Applications go through the CDTFA website.

With the permit in hand, the nonprofit presents a completed California Resale Certificate (Form CDTFA-230) to the vendor. The certificate lists the organization’s name and address, its seller’s permit number, and a description of the items being purchased for resale.⁴ The vendor keeps the certificate on file. A seller who accepts a valid resale certificate in good faith is not liable for sales tax on that transaction.⁵

The critical limit: the certificate only covers items the nonprofit will actually resell. Supplies used internally, like printer paper for the office or food for a staff meeting, do not qualify. If the nonprofit buys something on a resale certificate and then uses it rather than selling it, the organization owes use tax on that item.⁶

The Charitable Exemption for Poverty Relief

California does provide a genuine sales and use tax exemption for a narrow class of charitable organizations focused on relieving poverty. Under Revenue and Taxation Code Section 6375, both sales by and sales to qualifying organizations are exempt.⁷ To qualify, the organization must satisfy all four requirements in CDTFA Regulation 1570:

It must be formed and operated for charitable purposes and qualify for the property tax welfare exemption under Revenue and Taxation Code Section 214.
Its primary purpose must be relieving poverty.
Sales or donations must be made principally to help people in distressed financial condition.
The items sold or donated must have been made, prepared, assembled, or manufactured by the organization itself.

The fourth condition catches organizations off guard. A thrift store that simply collects and resells donated clothing does not qualify, because the organization did not make or assemble the goods. A charity that sews blankets and distributes them to homeless individuals could qualify. Incidental sales to people who are not in financial distress will not disqualify the organization, but the primary activity must be poverty relief.⁸

An organization that meets all four conditions can also buy tangible personal property tax-free if the items will be donated. Tax still applies to tools, office equipment, and other supplies the organization keeps for its own use.⁸

Two Other Narrow Exemptions

Meals Served by Religious Organizations

Revenue and Taxation Code Section 6363.5 exempts meals and food products served by a religious organization at social or other gatherings, provided two conditions are met: the purpose of serving the meals is to raise revenue for the organization’s functions, and that revenue actually goes toward those functions. The organization’s property must also be exempt from taxation under the California Constitution’s provision for religious organizations.⁹ A church dinner where proceeds fund the congregation’s programs typically qualifies. A catering operation run as an unrelated business likely does not.

Children’s Clothing for Poverty Relief

Section 6375.5 exempts new children’s clothing purchased by a nonprofit for free distribution to elementary school children, provided the organization is organized for charitable purposes, holds exempt status under Section 23701d, is engaged in poverty relief, and distributes the clothing to recipients in financial distress.¹⁰ The exemption is narrow by design: new clothing, distributed free, to schoolchildren. Resale items and clothing given to adults do not qualify.

Fundraising Events and Auctions

Selling merchandise at a gala, silent auction, or charity event is a taxable retail sale, and the organization needs a seller’s permit to handle it correctly.⁶ The CDTFA offers two paths depending on how frequently a nonprofit runs events with taxable sales:

Fewer than three events per year: the organization can apply for a temporary seller’s permit for each event.
Three or more events per year, or continuous sales: the organization should obtain a regular seller’s permit.

Even when temporary permits are available, the CDTFA suggests holding a regular permit is often easier because it removes the need to apply before each event and ensures tax returns are sent automatically.⁶

Items bought specifically to resell at an auction or fundraiser can be purchased tax-free with a resale certificate, since they are being acquired for resale. The moment one of those items gets diverted to the organization’s own use, such as keeping an unsold auction item for the office, the nonprofit owes use tax on that item’s purchase price.

Penalties for Misusing a Resale Certificate

Using a resale certificate on items the organization has no intention of reselling is a crime in California, not just a paperwork problem. Under Revenue and Taxation Code Section 6094.5, anyone who knowingly issues a resale certificate for property that will not be resold in the regular course of business, for the purpose of evading tax, is guilty of a misdemeanor.¹¹

The person who signed the certificate is also personally liable for the unpaid tax plus a penalty of 10% of the tax or $500, whichever is greater, for each improper purchase. That penalty applies per transaction, so an organization that routinely misuses certificates to buy office supplies, decorations, or equipment for internal use can accumulate significant liability quickly. Corporate officers and employees who sign certificates face personal exposure; the statute does not limit liability to the organization itself.

The CDTFA also flags high volumes of exempt-sale claims as an audit trigger. When a nonprofit reports a large proportion of nontaxable sales or deductions relative to its total activity, an auditor may request every resale certificate on file and compare purchased items against actual resale records.

Recordkeeping That Keeps You Out of Trouble

The organizations that run into problems are almost always the ones with sloppy records, not intentional fraud. A few habits go a long way.

Separate inventory from supplies. Track items bought for resale in a different account or category from items bought for the organization’s own use. When everything goes into one general purchases bucket, it becomes easy to issue a resale certificate for the wrong items.

Keep copies of every resale certificate. Both the nonprofit (as buyer) and the vendor (as seller) should retain them. If the CDTFA audits the vendor and the certificate is missing, the vendor may be assessed the uncollected tax and may then look to the nonprofit for reimbursement.

Report use tax promptly. When the nonprofit buys something without paying sales tax, whether through a resale certificate on items later kept or from an out-of-state vendor, use tax is owed. Reporting it voluntarily on the next return is far cheaper than having the CDTFA discover it during an audit and add penalties and interest.

Review exemption eligibility periodically. Organizations change. A nonprofit that once met all four criteria under Regulation 1570 may no longer qualify if its mission shifts away from direct poverty relief. Continuing to claim the exemption after the organization no longer qualifies creates the same liability as misusing a resale certificate.

For a full walkthrough of every exemption, reporting requirement, and seller’s permit rule that applies to California nonprofits, the CDTFA’s Publication 18, “Nonprofit Organizations,” is the single best reference.¹

1
California Department of Tax and Fee Administration. Nonprofit Organizations
2
California Department of Tax and Fee Administration. Tax Guide for Nonprofit Organizations: Getting Started
3
California Department of Tax and Fee Administration. Obtaining a Seller’s Permit
4
California Department of Tax and Fee Administration. California Resale Certificate – CDTFA
5
California Department of Tax and Fee Administration. Common Sales and Use Tax Nontaxable Sales and Partial Exemptions
6
California Department of Tax and Fee Administration. Tax Guide for Nonprofit Organizations – Industry Topics
7
California Department of Tax and Fee Administration. Sales and Use Tax Law – Section 6375
8
California Department of Tax and Fee Administration. Regulation 1570 – Charitable Organizations
9
California Department of Tax and Fee Administration. Sales and Use Tax Law – Section 6363.5
10
California Legislative Information. California Revenue and Taxation Code 6375.5
11
California Legislative Information. California Revenue and Taxation Code 6094.5