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Winter Bridge, L'ANse by Jim Baker. Click to enlarge

Section 258.4(d) of the 2008 Book of Discipline makes it mandatory that every local church finance committee “shall make provision for an annual audit of the financial statements of the local church and all its organizations and accounts.”

 

But there are more reasons than that for annual audits. Here are a few:

 

 

 

Conducting an audit is not a symbol of distrust

It is a mark of responsibility.

It is a message to local church donors that you care about their gifts.

It is good stewardship demonstrated for all to see.

Protect your people and your finances: perform an annual audit

You can get the help you need from the UMC General Council on Finance and Administration in the form of the latest version of the Local Church Audit Guide. The guide is available online at gcfa.org/audit.html, or if you are unable to access the guide, contact the district office. It includes an audit check list and  a “Report of the Annual Audit” with instructions. The guide answers such questions as:

Qualified nonprofit organizations (e.g. churches) do not need to collect or pay sales tax on goods they sell if annual gross sales are less than $5,000. Public Act 156 of 1994 exempts from sales tax sales at retail made by certain organizations from tax if aggregate sales at retail for the calendar year are less than $5,000. Sales at retail are defined as transfers of ownership of tangible personal property such as food, shoes, toys, clothes or appliances. “Sales at retail” indicates transfer of goods from one entity to another regardless of profit.

 

For example, when a church holds a Christmas bazaar for the sale of craft items, and aggregate sales for the year exceed $5000, the Sales Tax Act applies to all sales.

Every subdivision of a single church (UMW, youth group, men's group, choir, etc.) is considered part of the same church for purposes of calculating the $5000 limit.

 

All churches that make sales at retail (defined as the sale of tangible personal property for any purpose to the ultimate consumer (MCL 205.51(1)(b)) must apply for and receive a sales tax license. (MCL 205.53.) If the annual retail sales of the church are less than $5000, then the church is exempt from paying any sales tax. (MCL 205.54o.) However, they must still receive a sales tax license.  It is not an exemption of the first $5000.

 

Nonprofit organizations making sales at retail are still required to register and obtain a sales tax license even if their total sales for the calendar year are less than $5,000 and they have no tax liability.

 

Items intended for resale can only be purchased without payment of tax by making a claim of exemption on the Certificate of Exemption by reason of “for resale at retail.” A sales tax license is required before such a “resale”claim can be legally made.

 

Exemption is only available to those noted organizations who have total aggregate sales in a calendar year from all sales activity of less than $5,000. If sales in the year are $5,000 or more, all sales are subject to tax. This is not an exemption for the first $5,000 in sales.

 

Any tax you do collect must be paid to Treasury regardless of the amount of gross sales. For example, if you expect your gross sales to be $6,500 and collect sales tax, but later find your gross sales were only $4,000, you must pay the sales tax collected to Treasury. You must register even if the items you sell are not taxable. If you don’t collect sales tax on your sales, but your sales exceed $5,000, you are liable for the tax on the sales. For more information contact the Customer Contact Division, Technical Services Division, at 517-636-4730 or go to the Michigan Department of Treasury website.

 

Churches and other nonprofits qualify as businesses and individuals under the sales tax act. When they sell something to the final consumer, the sales tax applies. In other words, when they sell something to the person who is going to use it (or eat it), they must collect sales tax. If the church sold something to someone else (another store for instance) and that other person intended to sell the items to the people who would use it or eat it, then sales tax would not apply on the sale from the church to the other store (the sales tax would apply when the other store sells it to the ultimate consumer). However, it seems unlikely that a church would have, as part of its operations, a business where they act as a middleman buying or creating goods that they sell to others who intend to sell them to the final consumer.

 

Churches can apply for a sales tax license online through the Michigan Department of Treasury website. They need to complete Form 518

 

 

Michigan sales tax and churches
Taxes and Audits

Sales Taxes