One recent summer the IRS revoked the tax-exempt status of more than 275,000 nonprofit organizations for failing to file IRS Form 990 annual returns for the proceeding 3 years. Likewise, nonprofits who fail to file their required annual or periodic corporate report with the state authorities may be opening themselves up to revocation or even involuntary dissolution.
Most nonprofits are exempt from federal and state income tax. They are also entitled to exemptions from the real property tax and sales tax. Due to the complexity of determining which states offer these exemptions and the lack of uniformity from state to state, some nonprofits have yet to take advantage of them.
Majority of the states will award sales tax exemption to organizations that have been determined a charitable 501(c)3 organization from the IRS. For other types of tax-exempt nonprofits, state sales tax-exemption determination will require some careful reading of each state’s tax code and regulations.
A 501(c)3 designation does not qualify sales tax exemption in all states, but even for those that it does there are requirements that must be followed in order to obtain it. Most states across the board will require a short application form accompanied by the organization’s founding documents and financial statements. Each state differs as far as how often renewals must be submitted. There are a few states such as Pennsylvania and Washington D.C. that have very specific terms that must be adhered to so it is important to read the regulations for each state in which exemption is awarded.
For most nonprofits it is only necessary to obtain sales tax exemption in their domicile state or neighboring states where they conduct a lot of business. However, for larger organizations that conduct business in multiple states and make regular exempt purchases from the same vendor(s), they may want to obtain exemptions in multiple states.
In this case it may be helpful to use the Streamlined States and Use Tax Agreement Certificate of Exemption (SSUTA-COE) when making these tax exempt purchases. The Streamlined Sales Tax Governing Board and the SSUTA-COE were formed by members of multiple states with the objective to make the administration of sales tax collection reporting and procedures for claiming sales tax exemption in multiple states more efficient.
So far the SSUTA-COE is accepted by vendors in most member states as well as some nonmember states. However, purchasers are still responsible for knowing what they do and do not qualify for as not all states allow all of the exemptions listed on the form. The form also does not relieve the organization from obtaining the sales tax exemption in the states that use this form.
(Compiled from Sales and Use Tax Exemptions For Nonprofits, Ron Barrett, National Corporate Research, LTD)