Political Campaigns: Sales Tax Exempt Or Not?

Political campaigns are funded by a combination of personal and business donations, as well as public funding programs. In the US, eligible presidential candidates receive federal government funds to cover qualified campaign expenses, and taxpayers can opt to contribute $3 of their taxes to the Presidential Election Campaign Fund. However, political contributions are not tax-deductible, and any money left over after a campaign ends must be used to pay off debts or dispersed in other ways, such as refunds to donors. While political organizations are subject to tax on their taxable income, there is no clear indication of whether campaigns themselves pay sales tax.

Do political campaigns pay sales tax?

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Donations to political campaigns are not tax-deductible

Political campaigns are subject to tax on their taxable income. This is calculated by multiplying the organisation's taxable income by the highest rate of tax specified in §11(b). Taxable income includes exempt function income (such as contributions) for any period that a political organisation does not file a Form 8871 as required.

Political organisations, including campaign committees for candidates for federal, state, or local office, and political action committees, are subject to tax under IRC section 527 and may have filing requirements.

Businesses cannot deduct political contributions on their tax returns. This includes in-kind donations and advertisements in political convention bulletins.

Political organisations are taxed on their taxable income

Political organisations, including campaign committees for candidates for federal, state, or local office, are subject to tax under IRC Section 527. This means that they are required to file periodic reports, such as Form 8872, with the IRS. The tax is paid using Form 1120-POL, U.S. Income Tax Return for Certain Political Organisations.

It is important to note that donations made to political organisations or candidates are not tax-deductible for individuals or businesses. This includes monetary donations, in-kind contributions, and volunteer expenses. On the other hand, donations to charitable organisations may be tax-deductible, but only if they are qualified charities under §501(c)(3) of the Internal Revenue Code. These organisations must not attempt to influence legislation or participate in any political campaigns.

Additionally, the presidential public funding program allows eligible presidential candidates to receive federal funds to cover qualified campaign expenses. This program is funded by taxpayers who voluntarily designate $3 of their taxes to the Presidential Election Campaign Fund on their federal income tax forms.

Campaign contributions must be used for campaign expenses

Political organizations are subject to tax under IRC section 527 of the Internal Revenue Code. This includes federal, state, and local political committees, as well as political parties and political action committees.

Political contributions, whether to candidates, parties, or PACs, are not tax-deductible. This includes monetary donations, in-kind contributions, and volunteer expenses. In other words, any money spent on a political campaign cannot be claimed as a deduction on your annual tax return.

If a candidate drops out or the election ends, any remaining funds must be used to pay off campaign debts. Candidates may also choose to refund contributions to donors, especially if they do not make it past the primary election. They may also donate the remaining funds to a federal, state, or local political committee.

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Presidential campaigns can be publicly funded

To be eligible to receive public funds, candidates must be seeking nomination by a political party for the office of President and must establish broad-based public support. This can be demonstrated by raising more than $5,000 in each of at least 20 states, with contributions from a minimum of 20 individual donors in each state.

Once the FEC determines that a candidate has met the eligibility requirements, it certifies the amount of public funds the candidate will receive. Eligible candidates may receive public funds matching their private contributions, up to half of the national spending limit for the primary campaign. Major party nominees are eligible for a general election grant, which is adjusted for inflation each presidential election year. For 2024, this grant is $123.5 million. Candidates may also spend an additional $50,000 of their own money, which does not count against the expenditure limit.

Nominees who accept public funds agree not to raise private contributions and to limit their campaign expenditures to the amount of the grant. They may continue to request public funds to pay off campaign debts until the first Monday of March of the year following the election.

Political organisations must file tax reports

Political organizations are subject to tax under IRC section 527 and may have filing requirements. These include political parties, campaign committees for candidates for federal, state, or local office, and political action committees.

Most tax-exempt political organizations are required to file periodic reports on Form 8872 with the IRS. This is known as the Political Organization Report of Contributions and Expenditures, and it is filed for contributions in excess of $200 and expenditures made to a person who has received at least $500 during the year.

To file electronically, the organization must have the username and password received from the IRS after filing its initial notice (Form 8871). The Taxpayer First Act requires electronic filing by exempt organizations in tax years beginning after July 1, 2019.

The tax on political organization taxable income is calculated by multiplying the income by the highest rate of tax specified in §11(b). If the organization is the principal campaign committee of a candidate for the U.S. Congress, the tax is calculated using the graduated rates specified in §11(b). The tax is paid with Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.

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