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When PTAs sell items but use profits exclusively to support the purpose of the association, they are considered consumers and not retailers of certain items that they sell (California Department of Tax and Fee Administration).

Tax exempt does not mean PTAs do not have to pay sales tax. It means you are not subject to tax on your sources of income such as donations, membership, and sales of merchandise that you have purchased for fundraisers.

Sales tax is paid at the time of purchase by units. Consequently, sellers permits are not required by units to conduct sales of those items. Note carefully that the condition for this exemption requires that the profits from sales must be used exclusively to further the association’s purposes.

Vendors do not always charge sales tax to units for items purchased for sale at fundraisers. At times, vendors have stated that units are never charged sales tax, or they have argued that units need a seller’s permit, because they are selling merchandise to the consumer.

According to Nonprofit Organizations Publication 18 (available from the California Department of Tax and Fee Administration website at https://www.cdtfa.ca.gov/formspubs/pub18.pdf), units are excluded from collecting and remitting sales taxes for items sold, and have been determined to be consumers of the items purchased. The proceeds from items sold, however, must be used exclusively to further the association’s exempt purpose. This means units must pay sales tax to vendors for such items intended for sale when they purchase items from vendors. Units are not considered to be sellers of items as a result of this special exclusion and, therefore, do not have to obtain Sellers’s permits or file sales returns.

Units may have to inform vendors of their exclusion status and insist on paying sales tax to the vendors. Units may need to adjust vendor invoices to include sales tax and pay the adjusted amount. Units may have to consider using different vendors if they are unable to obtain cooperation or agreement regarding the payment of sales tax to the vendors.

If a PTA is not sure who is responsible for reporting and paying tax on sales it arranges with a fundraising company, it should call the California Department of Tax and Fee Administration customer service center for assistance at 1-800-400-7115 (CRS: 711).

Council and district PTAs do not meet the same criteria as units and, therefore, are required to have sellers permits obtained from the California Department of Tax and Fee Administration if they are engaged in fundraising that involves the sale of tangible items.

Because of the great diversity of fundraising activities by council and district PTAs, consult Nonprofit Organizations Publication 18, available from the California Department of Tax and Fee Administration website at https://www.cdtfa.ca.gov/formspubs/pub18.pdf to determine what may and may not be taxable.

Beginning April 1, 2019, out-of-state vendors are required to register with the California Department of Tax and Fee Administration (CDTFA), collect the California use tax, and pay the tax to the CDTFA based on the amount of their sales into California. PTAs should refer out-of-state vendors to the CDTFA online guide at https://www.cdtfa.ca.gov/industry/wayfair.htm.

Prepare an Financial Review Report, including recommendations, for each bank account or savings account. The form should list the account bank, branch address and account number. The report is presented as follows:

• Unless mismanagement is uncovered, the financial review and recommendations are presented to the treasurer and president.
• The report(s) and recommendations are then presented to, and the report adopted by, the executive board.
• The report(s) is then presented to the association for adoption. After the financial review report is adopted by the association, the report(s), checklist and recommendations are uploaded to the document retention system in accordance with the bylaws.

When called upon, at the association meeting read only the statement “I/The financial reviewer/financial review committee has/have examined the records of the treasurer (and financial secretary) of _____ PTA and find them

• to be correct,
• to be correct with the following recommendations, or
• to be substantially correct with recommendations, or
• to be partially correct but more adequate accounting procedures are needed so that a more thorough financial review report can be given, or
• to be incorrect.”

The financial reviewer, or in the case of a financial review committee, each committee member, must sign the report. If there were recommendations, the president should state that the treasurer and executive board is or will be addressing the issues. The financial review report is adopted by the association with the motion, “I move that the audit report be adopted.”

Whenever questions are raised by the membership, the president should appoint a committee to look into the concerns and report back to the association at the next meeting.

The Financial Review Checklist should be used, and each box marked in the negative should result in a financial review recommendation. Review each account separately. Check off items in red ink as they are reviewed. Do not correct errors. Ask the responsible financial officer to correct errors. After errors have been corrected, and the financial reviewer is satisfied that the financial accounts are correct, the financial reviewer needs to denote the ending date of the financial reviewer. If a manual ledger and check register exists, draw a double line across the ledger and checkbook register where the audit concludes and sign and date using red ink, “Reviewed by (name) on (date).” If a computerized accounting program is used, attach a copy of the cash account and the last page of the check register to the financial review report filed with the secretary minutes, sign and date using red ink, “Reviewed by (name) on (date).”

The financial reviewer ensures that the association’s financial transactions have been accurately recorded

• Include bank name, bank address, type of account and the account number on each report.
• Start review with records posted after the last financial review. Verify the amount shown on the first bank statement (adjusted for outstanding checks and deposits per the prior financial review) corresponds to the starting balance recorded in the checkbook register, ledger, and treasurer report, and the ending balance of the last financial review.
• Confirm bank statement was reviewed by another non-check signer if the financial reviewer had not been assigned that task.
• Verify there have been no ATM transactions.
• Make sure every check issued for the review period is substantiated with an authorization for payment, the reason and budget line item for the disbursement, appropriate payee and a receipt or bill. Each authorization should be signed by the president and the secretary. If the check has cleared the bank verify that there are two signatures and that both were from authorized check signers. Verify authorization/ratification in the minutes. Note: Checks issued for pass-through funds do not require pre-authorization but should be ratified.
• Check that all bank charges and interest earned are recorded in the checkbook register, ledger and treasurer reports.
• Trace each deposit slip to bank statement and checkbook entries. Verify deposits are properly supported and that a Cash Verification Form (Forms, Chapter 9) or equivalent was used for each deposit. Verify that at least one of the signers of the form was an officer or committee chairman. Ensure money was deposited promptly.
• Ensure collection process is in place for returned checks that includes reimbursement of applicable bank charges. A returned check is treated as reverse income and reimbursed bank charges are treated as reverse expenses. Verify returned checks have been properly reported.
• Verify deposits and checks have been properly recorded in the treasurer’s reports.
• Verify the deposits and checks have been properly posted to the ledger and check register. Note: Request computer reports that show all the various accounts affected by the transaction.
• Verify that all income and expenditures are allocated into budgeted categories.
• Make certain that council, district, State and National PTA portions of the membership dues have been kept separate from other receipts.
• Make certain that the number of memberships agrees with membership chairman’s report, and verify that membership monies collected correspond to membership monies forwarded.
• Remember that Totem memberships do not have a corresponding amount forwarded.
• Ensure payment for insurance premiums.
• Make certain the money collected for a specific purpose (special projects, Founders Day, scholarship funds, council dues, etc.) has been so disbursed.
• Check event reports to verify receipts and expenditures have been properly reflected in the financial records.
• If an advance has been given, verify that receipts and/reimbursements have been received and properly recorded. If money was returned, verify it has been redeposited into the PTA account.
• Compare figures on monthly treasurer and financial reports against ledger for accuracy.
• Ensure proper tax returns have been filed.
• Verify that the PTA-required Workers’ Compensation Annual Payroll Report form has been filed.
• Verify that all required state and federal report forms have been filed if PTA hires employee(s) or independent contractor(s).

The financial reviewer should feel free to contact the treasurer if there are questions or issues needing clarification. If an error in recording a transaction is found, the financial reviewer needs to recommend the entry be corrected. Any corrections made as a result of the review need to be listed on the next treasurer’s report.

The financial reviewer should not be punitive in the report/recommendations. Difference of opinion as to process should not result in a recommendation if the treasurer’s records are correct.

Some examples of recommendations are:

• Cash must be counted by two PTA members and each must sign the Cash Verification Form. On xxxx, xxxx, xxxx, and xxxxx there was only one signature.
• Authorization for expenditure must be voted on by the executive board or association before checks are issued. Check numbers xxx, xxx, xxx were issued before authorizations were approved.
• Authorization forms must be signed by the secretary and president for check numbers xxxx, xxx and xxxx.
• Check numbers xxx, xxx and xxx were issued more than six months ago. They should be voided, and investigated and reissued if necessary.

If assistance is needed, contact the council or district PTA. At any time during the process, California State PTA also may be contacted for information and assistance.

Collect all financial books, records and reports from the treasurer, including:

• A copy of the last financial review report;
• Current bylaws and standing rules;
• Originals of checkbook register, whether handwritten or computer generated, and canceled checks (including voided checks);
• Originals of bank statements, bank book for each bank or savings account;
• Deposits and supporting documents for the cash receipts;
• Authorizations for payment with attached receipts;
• Itemized statements and receipts of bills paid;
• Monthly Treasurer’s Reports;
• Original treasurer’s books/ledgers including back-up files (external storage device) if books are kept on a computer;
• Financial Report by category for the period of the financial review with or without budget comparison;
• Copies of board, executive committee and association minutes, including an adopted budget, any amendments that were approved during the year, approval of expenditures, and ratification of payments;
• Committee reports from chairmen (e.g., fundraising, membership, etc.);
• Any other information requested by the financial reviewer;
• Copy of PTA-required Workers’ Compensation Annual Payroll Report form;
• Copies of all required state and federal report forms if PTA hires employee(s);
• Copies of all required federal report forms if PTA hires independent contractor(s);
• Copies of the most recently filed IRS Form 990;
• Copies of the applicable State Form 199 and RRF-1 and CT-TR-1 form if applicable.

When considering and carrying out large fundraisers, keep the following concerns in mind:

• Is the fundraising project related to PTA’s educational, charitable and philanthropic purposes as a tax-exempt organization?
• Will the proceeds of the fundraiser be designated for specific approved projects that meet the purposes of PTA? Do not hold a fundraiser if the PTA has not determined how the funds will be spent.
• Does the project violate PTA’s noncommercial policy?
• Does the association have enough volunteers?

 

The law permits a nonprofit organization to receive corporate sponsorship income tax free if the sponsorship is linked to a specific event that is held once per year. It is acceptable for PTA to receive payments structured as royalties which is a percentage of gross sales or to enter into sponsorship agreements with businesses, including e-commerce businesses. Under new regulations, it is acceptable for PTAs to agree to an exclusive sponsorship. An exclusive agreement is one which prohibits competitors of the sponsor from selling at the event. The portion of the payment which reflects the exclusion element is taxable.

For the payment to qualify, there must be no arrangement or expectation that the business will receive any substantial return benefit for its payment. The PTA may not enter into a partnership with a business. Partnership implies sharing in the profit and loss of the business and would result in unrelated business income and tax liability.

The PTA should acknowledge publicly the royalties or sponsorship. The acknowledgment of thanks can list the corporate sponsor’s name, logo, address, telephone number, and products.

PTA May

Hang a banner on the school campus with permission of the school principal per district policy.

Hang a banner where an event is being held after a Facilities Use Permit (PTA Use of School Facilities; Facilities Use Permit Addendum) is approved.

Place an acknowledgement in an event program book.

Announce event sponsors to the audience.

Acknowledge the sponsorship of a particular event in the PTA newsletter or school newsletter, if school district policy permits.

Distribute samples of the sponsor’s products at the sponsored event (if school district policy permits) or if a Facilities Use Permit (PTA Use of School Facilities; Facilities Use Permit Addendum) allows sponsored product distribution.

The PTA may provide a hypertext link from the PTA’s website to the sponsor’s website. PTA must be cautious in how this link is established. It is possible that the existence of a link might cause the sponsorship payment to be considered as unrelated business income, particularly if the link is in the form of a moving banner. A link would more than likely be seen by the IRS as retaining the passive character associated with corporate sponsorship, while a moving banner is more likely to be considered advertising. The duration of the link should correspond to the terms of the contract with the sponsor.

If PTA provides a Web link to an e-commerce business, a disclaimer must be included on the PTA website. For example:

“PTA does not endorse, warrant or recommend any of these products. PTA will receive a small percentage of every sale. If you decide to purchase any products, we thank you.”

An e-commerce business should be seen as a fundraising company acting as an intermediary or buffer between retailers and consumers.

While the PTA obviously would put some effort into promoting the use of electronic shopping, in order to do so without risk, the following conditions must apply:

• Use of the program must be entirely at the discretion of the user;
• Unit cannot have control over whether or not anyone will use the site;
• Unit cannot have control over whether or not they are entitled to any of the proceeds; and
• Unit cannot release member information to a third party.

A variety of e-commerce retailers, also known as charity malls, are donating a portion of purchases made through their sites in exchange for the goodwill the charity can generate. The charity mall allows customers to use the charity mall’s home page as a portal for shopping at any number of participating stores. For each online purchase, the PTA would receive a percentage of the sale. Working with the e-commerce business in this way, the PTA is less likely to be characterized as conducting a business, and instead, is simply receiving royalties.

Each fundraising opportunity must be evaluated individually.

Businesses Should

Understand PTA policies and procedures, especially in relation to noncommercial, nonsectarian, and nonpartisan policies;

Not violate PTA policies, positions and goals;

Exclude all websites that sell or feature firearms, tobacco, liquor, or adult content material;

Have a written policy that supports education opportunities;

Offer benefits to PTA;

Encourage participation in PTA;

Protect the privacy and security of users:

• Prohibit framing, the possibility that a third party is monitoring the transaction, when users are interacting with merchants;
• Have privacy seals from the Better Business Bureau and Trust; and
• Require individuals to provide only minimal information, such as name and e-mail address;

Not require mandatory registration or membership in order to participate in the program;

Ensure that program interface is clear, functional, and easy to use;

Structure payments to the PTA as royalties;

Specifically identify the unit as a separate and distinct entity receiving the royalties, rather than just listing the school site;

Provide a complete accounting for determining the share of royalties on a monthly basis;

Require a minimal amount of effort from the PTA in promotional activities;

Be seen as a fundraising company acting as an intermediary between retailers and consumers.

Note: Purchases made through e-commerce generally will not result in tax-deductible charitable contributions, unless the purchaser can demonstrate that the amount paid for the item exceeded its fair market value and that the excess payment was intended to be a gift to the PTA.

Fundraising events must be approved in advance by the executive board and association. Approval should be recorded in the minutes. Recruit enough volunteers to conduct the project. Assign each volunteer specific tasks and develop a work schedule. Solicit donated goods and services. Clear the dates with the school and reserve needed facilities and equipment. (See Event Planning Worksheet; Preliminary Planning)

Make firm arrangements with vendors. Obtain all necessary permits. Be sure each vendor is fully covered by his own liability insurance and Workers’ Compensation insurance. Have vendor sign a Hold Harmless Agreement and obtain a copy of the vendor’s certificate of insurance.

Council, district, State, and National PTA portions of membership dues and the Founders Day freewill offering are not a part of the unit’s funds to be used for expenses. They should not be included in the annual budget as receipts for budget planning purposes. They also are not included in the gross receipts when reporting to the IRS (Gross Receipts). These funds can be paid without the authorization of the membership. Such funds should be forwarded through channels immediately. Council or district PTA remittance forms must be issued to ensure proper allocation of funds from the unit.

All disbursement of funds not belonging to the unit must be recorded in the next treasurer’s report and payment reported to the association. Council and district PTAs set their own dates far enough in advance of California State PTA due dates to have sufficient time for such pass-through funds to be received by the California State PTA office (Budget Sample).

To receive an advance for an approved expense, a Request for Advance form must be completed, approved by the president and returned to the treasurer. A Payment Authorization/Expense Reimbursement form must be filed within 45 days of the advance being received by the requestor. All receipts must be attached to the expense statement. If an advance greater than the expense is received, a refund of the difference must accompany the expense statement. If expenses exceed the amount of the advance but the total does not exceed the approved amount, reimbursement of the difference can be made. If the total exceeds the approved amount, the excess amount must be approved by the board and ratified by the association before the additional amount can be reimbursed.

Whenever an authorization vote has not been taken, the treasurer must wait for approval prior to reimbursing the member. The member presents the Payment Authorization/Request for Reimbursement form to the treasurer with proof of money spent, such as an invoice marked “paid,” a dated cash register receipt, etc. The treasurer presents each bill at a meeting of the executive board or the association, and a motion must be made to pay it. Discussion and vote follow. The action of the executive board must be ratified at the next association meeting.

When bills are approved for payment, the secretary records the motion, listing the bills approved (authorized) for payment in the minutes.

The secretary signs the Payment Authorization/Request for Reimbursement form to denote that the expense has been approved and the motion is included in the minutes. The president signs the Payment Authorization/Request for Reimbursement form to denote it is a PTA-authorized expenditure.

The Payment Authorization/Request for Reimbursement form is given to the treasurer.

The treasurer prepares the check and records the check number on the Payment Authorization/Request for Reimbursement.

The Payment Authorization/Request for Reimbursement form is filed for review in the financial review.

The treasurer obtains the signatures of two authorized signers on the check for the protection of the PTA’s funds.

The treasurer distributes the check.

Follow proper procedures to guard against misappropriation of funds. The responsibility of establishing and maintaining correct procedures rests with each member of the PTA executive board.