Charitable auctions are sometimes held in conjunction with fundraising events. Auctions require additional reporting for gifts and other revenues generated. Both the donor and the purchaser of an auction item could possibly receive gift credit. Additional tax requirements also apply.
- State sales tax will be applied to any item sold at auction.
- Per Georgia state law, the applicable sales tax for each item sold at auction will be charged back to the appropriate Foundation fund. Please note that Foundation funds cannot be used to purchase items for auction, thus sales tax cannot be paid at the point of purchase and must be remitted upon sale.
- Sales tax is applicable to tangible real or personal property and services e.g. artwork, jewelry, photography, catering as well as items such as trips, hotel stays, etc. However, intangible items such as a “celebrity presence” are not taxable.
- Income received from an auction is considered a result of fundraising efforts. This is relevant to our tax treatment of the income received at auction. The University of Georgia Foundation does not consider the net revenue taxable for unrelated business income tax (UBIT) purposes.
- Adequate and correct information identifying the donors, purchasers, and items at the auction is necessary. Please make sure the following are included for both the donors of auction items and the purchasers of auction items:
- GAIL lookup ID if applicable
- Description of item purchased/donated
- Fair Market Value of item purchased/donated (only if openly declared)
- Purchase price (Winning Bid)
There are two ways to evaluate the charitable gift aspect of auction items: Fair Market Value Declared and Fair Market Value Not Declared. Both the donors and the purchasers of auction items will be affected by this decision. Please consider the following points when planning a charitable auction.
Fair Market Value (FMV) Declared:
To consider an auction item as Fair Market Value Declared, the value must be openly stated in writing to the purchaser before the auction begins. The value could be listed in a pamphlet given to all attendees of the auction, announced by an auctioneer prior to bidding, or it could be listed on a place card or bid sheet next to the auction item on display. Declaring the FMV will impact the charitable deduction allowed for the donor of the item, as well as the purchaser of the item. Please be sure to provide the FMV when submitting paperwork to the Office of Gift & Alumni Information Management in order to grant the appropriate charitable deductions.
Special Considerations for Auctions with FMV Declared:
- Persons who donate an item to be auctioned are entitled to a charitable deduction of the FMV of the donated item. The IRS defines the FMV as the price that particular item would sell for on the open market. There are exceptions and donors should consult with a tax professional prior to making any gifts.
- The FMV is equal to the merchant suggested retail price (MSRP) or a good faith estimate.
- If the donated item has a value greater than $5,000, charitable deductions are dependent on an appraisal.
- Charitable deductions for services, such as but not limited to, a lawyer donating time to draft a contract, or the use of property, such as but not limited to, a vacation home, are not permitted.
- Persons who purchase an item that is being auctioned may be eligible to receive a charitable deduction upon the purchase of the item. To receive a charitable deduction, the purchase price must be greater than the declared FMV. The purchase price less the FMV equals the amount of the allowed charitable deduction.
- If charitable deductions are allowed for purchasers of items at the auction, the amount of sales tax that is paid is going to be lessened because there is a maximum FMV. The amount over the FMV is considered a gift and will not be included when sales tax is calculated.
Fair Market Value (FMV) Not Declared:
If the value of an auction item is not openly stated in writing to the purchaser before the auction begins, the item would be considered Fair Market Value Not Declared. Not declaring the FMV will impact the charitable deduction allowed for the donor of the item, as well as the purchaser of the item.
Special Considerations for Auctions with FMV Not Declared:
- Persons who donate an item to be auctioned are entitled to a charitable deduction of the FMV of the donated item. If the FMV is not declared beforehand, it will be determined by the amount of the winning bid and gift credit will be given accordingly.
- Purchasers of auction items without a declared FMV are not eligible for a charitable deduction in relation to the purchase of an item. Since no FMV was openly stated, the purchaser cannot knowingly “overpay” with charitable intent.
- If there are no charitable deductions allowed for purchasers of items at the auction, the amount of sales tax that is paid is going to be greater because there is no buffer of a maximum FMV. The full purchase price is considered to be non-gift sales revenue.
Last Updated on May 20, 2022