When a new business incorporates, as either a corporation or non-profit organization, it typically sets up its bookkeeping and record keeping according to advice from professionals, including accountants. Apparently an accountant did not provide the right advice to a Minnesota non-profit dog shelter and adoption agency.
According to news sources, a well-known rescue group received a statement from the Minnesota Department of Revenue saying that the non-profit owes nearly $130,000 in uncollected taxes.
The non-profit organization, Homeward Bound, has been in business for 22 years and during that time has found adoptive homes for more than 150,000 pets. According to the state of Minnesota, those adoptions are actually sales and the organization should have been collecting sales tax.
The news article did not say how far back the state was going in its demand for back taxes; however it must include several years to accumulate a past-due tax debt as significant as the one reported.
The woman who founded the organization expressed dismay at the tax liability and claims that the organization does not have the funds to pay the back taxes. Similar to other non-profits, the revenue coming in to the shelter goes out again in a pretty direct fashion. The woman also stated that the organization's accountant indicated that they would not owe sales tax.
However, it is well known that both the Internal Revenue Service and the Minnesota Department of Revenue policy is that lack of knowledge about tax law is not a reason to be out of compliance with tax law.
News sources reported that the state will give the animal rescue group five years to pay the tax bill. Failure to pay can come with consequences including potential tax liens, penalties and interest.
To date, the state has not agreed to any negotiate with Homeward Bound.
Source: KSTP, "Rescue Group Says Tax Mishap Means Dogs Could Die," Ellen McNamara, May 11, 2012