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Brandon Area Of Chamber Becomes Even More NonProfit After State Sales Tax Audit

Tuesday November 14, 2006

By Ed Barna

   The Vermont Tax Department conducts audits as well as the federal Internal Revenue Service and presumably the External Revenue Service (you’re supposed to pay taxes on offshore revenues). And nonprofit organizations, as well as companies and individuals, get investigated in this way.

    This year, it was the Brandon Area Chamber of Commerce’s turn, and the audit turned up a problem with enough of an impact that the BACC is now trying to alert other organizations that might be in a similar situation.

    “ We were randomly chosen for this audit and it taught us quite a few lessons!,” said a Chamber letter that executive director Janet Mondlak and president Bernie Carr (Carr’s Country Florist & Gifts) collaborated to write, and got the approval of the board of directors to send out. “There were essentially two places where we came up short.”

    “Both were out of ignorance,” the letter said. “We acknowledge our error with one of the areas. The other is a little more frustrating.”

    Many people have become familiar with the federal designation “501(C)3” for nonprofits like churches, schools, and charitable organizations--a reference to the part of the tax code that applies to them. There are also 501(C)6 nonprofits, like the Chamber--hybrid organizations which combine business-member-related functions with unmistakably charitable activities.

    “Chambers of Commerce are required to pay sales tax on all items which we purchase,” the letter said. “For the most part, we do that. However, there were some vendors who were not charging us sales tax and when paying some bills, we did not pick up on those omissions. Accordingly, the State went over the last three years of our bills and charged us back sales tax and interest on those things which we had not previously paid.”

    That wasn’t so bad, the Chamber said, but the second and larger part of the bill has left them “still disgruntled,” though they won’t dispute paying it.  Brandonites will be familiar with the big annual auction in Central Park that is the Chamber’s largest single fund-raiser, as well as a much-loved form of entertainment. It turned out that as a 501(C)6, they were supposed to collect and pay sales tax on those items, regardless of whether the previous owners of the donated used goods had probably paid sales taxes on them already.

    The auditors went through three years of auction receipts, and assessed the sales taxes, plus interest, plus fees and penalties. A Chamber delegation went to Montpelier to meet with Tax Department officials.

    Mondlak said in an interview that they met auditor Jay Knable, his supervisor Marshall Wheelock, and Director of Compliance Brenda Vovackes. “The state says that ignorance of the law is no excuse for nonprofits,” she said--but the officials did waive about $1,400 in fees and penalties, and a closer look at the receipts led to the realization that gift certificates from stores and items that went to resellers (such as antiques to shops or artwork to galleries) shouldn’t have been included in the tax bill to the Chamber.

    In the end, the BACC tax liability came to $4297.23, “approximately 7% of our annual budget,” the letter said. “This does not penalize a ‘for profit’ enterprise, but truly penalizes the communities we serve through our active investment of monies, material and volunteerism.”

    Carr said the impact will be greater than the 7 percent figure suggests. For the three previous years, the auction sales total was boosted by renowned folk artist Warren Kimble’s donation of an original painting. In the last two years, the auction brought in about $23,000, he said.

    But this year, without a Kimble original, the auction only garnered about $15,000, Carr said. The loss of more than $4,000 was “a considerable blow to a small Chamber like us,” he said, not least because they are trying to acquire and retrofit the historic Stephen A. Douglas House as new information center and museum for visitors.

    Mondlak said the Chamber’s work has gone well beyond promoting the interests of members. Many people have benefited from their role in helping to start the Brandon Artist Guild, assisting the Town Hall restoration, rebuilding the Central Park bandstand, fixing fountains in both parks, putting in park benches and better trash receptacles, and organizing the annual Leaf People fall decoration program, she said.

    Mondlak gave other examples: putting on a summer concert series in Central Park, contributing to Operation Santa Claus (the local toy drive), creating a scholarship fund for Otter Valley Union High School.

    The Chamber’s biggest beef, though, isn’t with the rules applying to 501 (C) 3 organizations, but the way in which the State has applied them. That’s why the BACC is now trying to educate other organizations about potential sales tax problems, Mondlak said.

    “Organizations and their boards of directors similar to ours are typically made up of a very transient pool of volunteers,” the letter said. “We’re sure many chambers and other organizations across the state are operating under similar procedures and we feel the Tax Department should issue policy rules and regulation reminders to all non-profits.”

    “As we’ve waded through the bureaucratic process, it became obvious that this is, and has been, a very grey area, even to the Tax Department officials themselves,” the letter went on. “Many of our questions needed to be researched before an answer could be provided. It would seem to make sense to offer an amnesty for all groups concerned and start assessing the taxes on an informed and prepared populace.”

    At this year’s auction, sales taxes were collected. No problem. “But to go back three years and back-assess a Chamber, which operates with a small annual budget and which made an honest mistake, is wrong.”Mondlak said.

 


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