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Insights from Karen Climer about fundraising and nonprofit organizations

Question From A Reader About Taxes And Reimbursements

July 30th, 2014 by Karen Climer

Normally, I use this blog to offer my thoughts on fundraising.  Today I’m asking for your thoughts.  Please don’t let me down.

A reader sent me an email asking for my opinion.  This is a nonprofit management issue, more than a fundraising issue, but I think it is relevant to some of my readers.  I responded to this person directly, but I would love for you to weigh as well.

Here’s the email that I received:

Hey Karen,

Can you give me an idea of how other nonprofits handle this situation below – strictly related to fundraising and reimbursement?

Development officer takes a donor to lunch and pays for the lunch out of pocket on his personal credit card. The total meal cost includes tax because the restaurant does not honor the tax exempt certificate. When the development officer submits the receipt for this business-related expense, the nonprofit only reimburses for the cost of the meal and will not reimburse for the tax (“because we are a tax exempt organization”).

I can understand if the employee purchases a physical item and pays tax when a tax exempt certificate could have been used.  But I’ve found most restaurants/quick service do not honor tax exempt certificates and therefore the employee would pay tax but not be reimbursed by the nonprofit.

Is that the norm at most nonprofits? How have you seen other nonprofits reimburse employees for business related entertainment/meal expenses at 100% even if tax was paid?

Here was my response:

In the future, I would push it more at the restaurant.  Talk the manager, etc.  I know sometimes that is useless because they don’t understand.  Everyone who uses a tax exempt certificate has had at least one experience where the business doesn’t know how to handle it, so the nonprofit pays tax.

If you push at the restaurant and still have to pay tax, then yes the nonprofit usually reimburses everything.  Actually, in my personal experience, I have been reimbursed for sales tax 100% of the time.  And that is dealing with several different organizations, not just one.  I can think of one specific situation I had recently where I bought supplies on behalf of the organization.  I forgot to take the tax exempt certificate, so it was 100% my fault that we were charged tax.  I billed the organization for the amount of the item (minus the tax because it was my fault), but included the receipt.  They reimbursed me for the full amount including sales tax.

My personal opinion is that the development officer is putting his faith in the nonprofit by charging it to his personal credit card.  The nonprofit owes it to the employee to honor that.  Is the ill will that the nonprofit creates with its employee worth the few dollars it saves from the taxes?  Everyone who deals with tax-exempt purchases knows that sometimes the companies charge tax when they shouldn’t.  Yes, the restaurant should honor it, but are you going to penalize your own development officer because of the ignorance of the employee at the restaurant?

Good development officers are golden.  It will cost more than the $5 you pay in sales tax to find another top notch development officer.

I hope that helps.

By the way, in Orlando, sales tax is 6.5%.  If the meal cost $100 (I’m sure it was significantly less than that), the tax would be $6.50.

So friendly reader, please leave a comment below telling us how your nonprofit organization would handle this situation.  (Next week, we’ll be back to our usual fundraising tips.)

Posted in Nonprofit issues

3 Responses

  1. Lisa

    I’ve been in the situation of your reader once or twice in my professional life. I’ve even had to ‘prove’ that the restaurant would not take my tax exemption form in order to be fully reimbursed. It blows my mind that some NP leaders make such a fuss over pennies! It’s expensive to hire and train a new employee. I fully understand we have a responsibility to our donors to spend their donation as it is/was intended. If a restaurant has a policy that they don’t take tax exemption forms under a specific amount, then don’t go there again. Simple solution. Do some homework and call ahead to find out what their policy is. Karen…do you have a list of restaurants that accept tax exemption forms for bills under $50?

  2. Karen Climer

    I do not have a list. All restaurants are required to accept it. The problem is that you have a waiter who gets the tax exempt certificate and he doesn’t know what to do with it, so he says they don’t accept it. Sometimes even the manager will say that. I think that was the situation the OP had. I think it has more of a training issue within the restaurant than a restaurant policy. Of course, we have no control over either of those issues.

    Thanks for weighing in.

  3. Retired Not-for-profit CFO

    The employee who took the potential donor to lunch should be reimbursed in full. It is almost impossible, if not impossible, to work with restaurants on the no-tax issue. They are far different from say purchases at Costco, or other companies. Usually it takes a process to get the no-tax certificate approved. Pay the employee. He is working to help the organization. But, if he goes and buys $100 worth of items for the office, without clearing the tax-exempt situation with the business first, I then would say sorry.
    We all work very hard in the non-for-profit arena. Tax-exempt purchases are tough and required pre-planning… taking a donor to lunch should not require that type of planning….. unless the finance department has selected a few restaurants and made the necessary arrangements.

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