Sales and Use Tax Exemptions for Nonprofits                    Ron Barrett                     February 8, 2012A Service  ...
INTEGRATED PLANNING            Advising nonprofits in:        www.synthesispartnership.com            • Strategy          ...
Affordable collaborative data             management in the cloud.A Service   Of:                        Sponsored by:
Today’s Speaker                                           Ron Barrett                                 Vice President of No...
Presented by:Ron Barrett                5
• Ben Franklin wasn’t  talking about most  nonprofits…• Nonprofits are immortal• Nonprofits are exempt  from taxes• The el...
Presenter’s Contact Information                            Ron Barrett                            VP of Nonprofit Services...
Sales Tax Exemptions for Nonprofits          – Keys to Tax Exempt Purchases          – Sales Tax Exemption Requirements   ...
•       Nonprofit vs. Tax Exempt, 501c3,         Charitable Organization:         Nonprofit status is a matter of state l...
•        How do nonprofits obtain sales tax                       exemptions?              •        What documents are req...
www.nationalcorp.com   Subscribe to our: Connect with us:
Subscribe to our:   Connect with us:   12www.nationalcorp.com
• Incorporated as a nonprofit organization        • IRS Determination Letter        • 501(c)(3) Status        • Certificat...
Problems at the Point of Sale…                             Exempt purchaser meets clueless cashier                Prior a...
(in millions as of 2009)             Total expenses of reporting nonprofits (source: NCCS)        $1,400,000              ...
The “Show Me” state’s      Form 1746  “Missouri Sales/Use    Tax Exemption      Applicationwww.nationalcorp.com   Subscrib...
www.nationalcorp.com   Subscribe to our:   Connect with us:   17
Exemption Certificate Use              Applies to purchases used exclusively by                 an organization for its m...
The 4 Ps of Point-of-Sale Perfection…common                      requirements among disparate laws              Purpose  ...
Exceptions: The Exclusive Tax Exemption          ■ Legislative (e.g. AL)          ■ Industry-based (e.g. hospitals, univer...
• Most states and DC exempt religious          organizations        • States require an exemption             application,...
Subscribe to our:   Connect with us:   22www.nationalcorp.com
Questions to consider when considering a                   sales tax exemption…              Does the state require an ap...
www.nationalcorp.com   Subscribe to our: Connect with us:
Procedures vary by type of purchase (e.g. Connecticut)               Goods and Services vs. Meals and Lodging: point of s...
• Supporting Documents:                       – Articles of Incorporation and/or Bylaws                       – IRS Determ...
• Annual or Periodic Renewals (FL, MD, MA, MO, PA and SD)   • Due Dates   • Status/Search - Verify sales tax exemption, ce...
The “Show Me” state’s      Form 1746 Missouri Sales/Use Tax  Exemption Renewal      Applicationwww.nationalcorp.com   Subs...
The “Show Me” state’s      Form 126E Missouri Tax Exemption    Change Requestwww.nationalcorp.com   Subscribe to our:   Co...
• Who should file? An organization described in NYS Tax Law  section 1116(a)(4), 1116(a)(5), 1116(a)(7), 1116(a)(8), or  1...
 Requirements cont’d:        Branches and chapters of parent organization must include the         Determination Letter,...
• Who should file?  Exclusively charitable, religious or educational not-for-profits or  organizations described in Illino...
• Supporting Documents         Articles of Incorporation, or Constitution if unincorporated         Bylaws         IRS ...
• AL: Home address &                     • ME: Copy of       SSN of officers                           Publications  • DC:...
• PA: “Anything but” Basic                           12-page form & instructions                           5 criteria to...
Subscribe to our:   Connect with us:   36www.nationalcorp.com
 Streamlined Sales Tax Governing Board              Multistate Tax Commission                       Subscribe to our:   ...
 SSUTA-CEO: Streamlined Sales and Use                 Tax Agreement – Certificate of Exemption              Uniform Sale...
Helpful Resources•   IRS Links to State Revenue Sites      – http://www.irs.gov/taxpros/article/0,,id=100236,00.html•   Fe...
This presentation is provided for informational purposes only and         should not be relied upon as legal or tax advice...
Find listings for our current season          of webinars and register at:            NonprofitWebinars.comA Service   Of:...
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Sales and Use Tax Exemptions for Nonprofits

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It is well known that most nonprofits are exempt from federal and state income tax. They are also frequently exempt from real property tax, but one tax exemption that even nonprofits sometimes find elusive is “sales and use” tax.

With sales tax rates approaching 10% in some jurisdictions that combine state and local sales taxes, it’s an important exemption not to overlook. However, some nonprofits fail to take advantage of these exemptions because of the complexity of determining in which states an exemption exists and because of the lack of uniformity from state to state.

Though several states provide a variety of sales tax exemptions to various industries and organizations, most only make an exception for certain groups or types of nonprofits. In the majority of states the key to a sales tax exemption is the designation as a charitable, 501(c)3 nonprofit organization. For the other types of tax-exempt nonprofits, a state sales tax exemption is much less certain, and requires a careful reading of each state’s tax code and regulations.

Even with a 501(c)3 designation, charitable nonprofits in some states are still not exempt from sales taxes and, even if they are, procedural requirements must be strictly followed to actually receive a sales-tax exemption. This is true in nearly all states that offer an exemption from sales tax to nonprofit organizations.

This program will give you a broad overview of sales tax exemptions available to nonprofits; clarify how to obtain, manage and maintain these exemptions, and provide valuable reference information.

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Sales and Use Tax Exemptions for Nonprofits

  1. 1. Sales and Use Tax Exemptions for Nonprofits Ron Barrett February 8, 2012A Service Of: Sponsored by:
  2. 2. INTEGRATED PLANNING Advising nonprofits in: www.synthesispartnership.com • Strategy • Planning (617) 969-1881 • Organizational Development info@synthesispartnership.comA Service Of: Sponsored by:
  3. 3. Affordable collaborative data management in the cloud.A Service Of: Sponsored by:
  4. 4. Today’s Speaker Ron Barrett Vice President of Nonprofit Services National Corporate Research, Ltd.Assisting with chat questions: Hosting:April Hunt, Nonprofit Webinars Sam Frank, Synthesis PartnershipA Service Of: Sponsored by:
  5. 5. Presented by:Ron Barrett 5
  6. 6. • Ben Franklin wasn’t talking about most nonprofits…• Nonprofits are immortal• Nonprofits are exempt from taxes• The elusive tax exemption 6
  7. 7. Presenter’s Contact Information Ron Barrett VP of Nonprofit Services National Corporate Research. Ltd. 1100 G Street, NW, Suite 420 Washington, DC 20005 rbarrett@nationalcorp.com www.nationalcorp.com linkedin.com/pub/ronald-barrett/a/680/b00 Subscribe to our: Connect with us: 7www.nationalcorp.com
  8. 8. Sales Tax Exemptions for Nonprofits – Keys to Tax Exempt Purchases – Sales Tax Exemption Requirements – Multistate Exemption Projects & Certificates – Not Tax Exempt Sales – Not Resellers Certificates – Not Sales Tax Registration Subscribe to our: Connect with us: 8www.nationalcorp.com
  9. 9. • Nonprofit vs. Tax Exempt, 501c3, Charitable Organization:  Nonprofit status is a matter of state law, which governs the organization and creation of the entity  Tax exemption is mostly a matter of federal law  All tax-exempt organizations are nonprofits  Not all nonprofits are tax-exempt  Not all nonprofits are charitable organizations  Not all tax-exempt organizations are charitable organizations Subscribe to our: Connect with us: 9www.nationalcorp.com
  10. 10. • How do nonprofits obtain sales tax exemptions? • What documents are required? • Do exemptions expire? • Are there any fees? • Where are filings required? • Must you be located or have a presence in a state? • Which states offer sales tax exemptions to nonprofits? Subscribe to our: Connect with us: 10www.nationalcorp.com
  11. 11. www.nationalcorp.com Subscribe to our: Connect with us:
  12. 12. Subscribe to our: Connect with us: 12www.nationalcorp.com
  13. 13. • Incorporated as a nonprofit organization • IRS Determination Letter • 501(c)(3) Status • Certificate of Exemption • 4 Ps: Exempt Purpose, Purchaser, Proof, Payment Subscribe to our: Connect with us: 13www.nationalcorp.com
  14. 14. Problems at the Point of Sale… Exempt purchaser meets clueless cashier  Prior arrangements with merchants  Cashier’s manager usually needs to approve  Merchant is often liable for any incorrectly removed sales taxes  Buyer’s recourse…file for a refund  Many nonprofits don’t bother with the sales tax exemption Subscribe to our: Connect with us: 14www.nationalcorp.com
  15. 15. (in millions as of 2009) Total expenses of reporting nonprofits (source: NCCS) $1,400,000 Percent subject to sales tax (estimate) 15% Sales taxable expenses $210,000 Limited or no state exemptions – by spend (estimated) -35% Expenses subject to exemption $136,500 Average U.S sales tax rate – 2009 (source: Vertex, Inc) 5.48% Total exemptible taxes $7,480 Percent of exemptions unclaimed (estimated) 20% Estimate of total unclaimed sales tax exemptions $1,496 Subscribe to our: Connect with us: 15www.nationalcorp.com
  16. 16. The “Show Me” state’s Form 1746 “Missouri Sales/Use Tax Exemption Applicationwww.nationalcorp.com Subscribe to our: Connect with us: 16
  17. 17. www.nationalcorp.com Subscribe to our: Connect with us: 17
  18. 18. Exemption Certificate Use  Applies to purchases used exclusively by an organization for its mission (or purpose for which it is organized) – May not be used for: • Personal purchases • Purchases of items for resale • Other affiliated organizations • Activities that are mainly commercial enterprises Subscribe to our: Connect with us: 18www.nationalcorp.com
  19. 19. The 4 Ps of Point-of-Sale Perfection…common requirements among disparate laws  Purpose  Purchaser  Proof » Payment Subscribe to our: Connect with us: 19www.nationalcorp.com
  20. 20. Exceptions: The Exclusive Tax Exemption ■ Legislative (e.g. AL) ■ Industry-based (e.g. hospitals, universities) ■ Geographic limitations (e.g. DC & MD) ■ Tax exempt status - other 501cs No reciprocity Subscribe to our: Connect with us: 20www.nationalcorp.com
  21. 21. • Most states and DC exempt religious organizations • States require an exemption application, filing or certificate Subscribe to our: Connect with us: 21www.nationalcorp.com
  22. 22. Subscribe to our: Connect with us: 22www.nationalcorp.com
  23. 23. Questions to consider when considering a sales tax exemption…  Does the state require an application filing?  Are renewal filings required?  Is the level of spend sufficient to warrant the effort?  Are out of state or non-charitable nonprofits eligible for exemption?  What methods are available to establish a sales tax exemption or to make tax exempt purchases? Subscribe to our: Connect with us: 23www.nationalcorp.com
  24. 24. www.nationalcorp.com Subscribe to our: Connect with us:
  25. 25. Procedures vary by type of purchase (e.g. Connecticut)  Goods and Services vs. Meals and Lodging: point of sale vs. preapproval from state  CERT-119: provided to sellers (with attached exemption permit or determination letter) at point of sale (limit 5 days/events per year) for tax exempt purchase of goods and services  CERT-112 or CERT-123 (Blanket Certificate): provided to state in advance for approval of tax exempt purchase of meals and lodging and then provided to seller Subscribe to our: Connect with us: 25www.nationalcorp.com
  26. 26. • Supporting Documents: – Articles of Incorporation and/or Bylaws – IRS Determination Letter and/or IRS Form 1023 or 1024 – Financial Reports and/or Form 990 • Usually Not Required: – Corporate Formation, Qualification or Registered Agent in states where an exemption is needed • Forms: – Exemption Application – Certificate of Exemption – State-Specific vs. Multistate (SSUTA-CEO or Uniform Sales Tax Certificate) Subscribe to our: Connect with us: 26www.nationalcorp.com
  27. 27. • Annual or Periodic Renewals (FL, MD, MA, MO, PA and SD) • Due Dates • Status/Search - Verify sales tax exemption, certificates & documents (about 20 states offer online searches) • Amendments - Few states require amendments, but states should be updated (name, address, tax exempt status, merger and corporate conversion changes) Subscribe to our: Connect with us: 27www.nationalcorp.com
  28. 28. The “Show Me” state’s Form 1746 Missouri Sales/Use Tax Exemption Renewal Applicationwww.nationalcorp.com Subscribe to our: Connect with us: 28
  29. 29. The “Show Me” state’s Form 126E Missouri Tax Exemption Change Requestwww.nationalcorp.com Subscribe to our: Connect with us: 29
  30. 30. • Who should file? An organization described in NYS Tax Law section 1116(a)(4), 1116(a)(5), 1116(a)(7), 1116(a)(8), or 1116(a)(9) on Form ST-119.2 (NYS and Local Sales & Use Tax Application for an Exempt Organization Certificate)  Requirements:  No part of the organization’s net income can benefit private shareholders or individuals  The organization cannot, as a substantial part of its activities, attempt to influence legislation  The organization cannot participate, directly or indirectly, in political campaigns  The organization’s assets must be dedicated to its exempt purposes  501(c)(3)s need only include Determination Letter Subscribe to our: Connect with us: 30
  31. 31.  Requirements cont’d:  Branches and chapters of parent organization must include the Determination Letter, and a letter from parent organization or a copy of the parent organization’s directory of subunits  Supporting Documents Required [if not a 501(c)(3)]  Determination Letter  Organizing documents with any amendments  Statement of activities, receipts & expenditures, and assets & liabilities• Where to file? NYS Tax Department, Exempt Organizations Unit Subscribe to our: Connect with us: 31
  32. 32. • Who should file? Exclusively charitable, religious or educational not-for-profits or organizations described in Illinois Administrative Code; Title 86, Sections 130.2004, 2005 and 2007 [501c3 not-for-profit not necessarily qualified]• Who should NOT file? Civic and fraternal organizations, such as: American Legions, AmVets, Chambers of Commerce, Elks Clubs, Lions Clubs, Rotary Clubs, Veterans of Foreign Wars, unions and trade organizations• How to file? Letter Application for Exemption Identification Number, up to 90 days to process by the Illinois Department of Revenue Subscribe to our: Connect with us: 32
  33. 33. • Supporting Documents  Articles of Incorporation, or Constitution if unincorporated  Bylaws  IRS Determination Letter, if applicable  Brief narrative and brochures or other printed material explaining the purposes, functions and activities of the organization  Most recent financial statement (not required for religious organizations)• Renewal: required every 5 years within 3 months of expiration• Where to file? Local Government Services Bureau, Illinois Department of Revenue Subscribe to our: Connect with us: 33
  34. 34. • AL: Home address & • ME: Copy of SSN of officers Publications • DC: Qualification & • MD: Must be in MD Basic Business or adjacent state License • UT: Tax-exempt Organizations & Vendors enter into a contract Subscribe to our: Connect with us: 34www.nationalcorp.com
  35. 35. • PA: “Anything but” Basic  12-page form & instructions  5 criteria to qualify  43 Questions  Officer compensation  Detailed description • MD: Must register with SDAT & file annual return Subscribe to our: Connect with us: 35www.nationalcorp.com
  36. 36. Subscribe to our: Connect with us: 36www.nationalcorp.com
  37. 37.  Streamlined Sales Tax Governing Board  Multistate Tax Commission Subscribe to our: Connect with us: 37www.nationalcorp.com
  38. 38.  SSUTA-CEO: Streamlined Sales and Use Tax Agreement – Certificate of Exemption  Uniform Sales Tax Certificate Subscribe to our: Connect with us: 38www.nationalcorp.com
  39. 39. Helpful Resources• IRS Links to State Revenue Sites – http://www.irs.gov/taxpros/article/0,,id=100236,00.html• Federation of Tax Administrators – http://www.taxadmin.org/fta/link/default.php?lnk=2• Multistate Tax Commission – http://www.mtc.gov/• Streamlined Sales Tax Governing Board – http://www.streamlinedsalestax.org/• The Sales Tax Connection (a top 50 tax blog) – http://salestax.wordpress.com/• National Corporate Research – Forms Library & Filing Guidelines http://www.nationalcorp.com/ncr/service/show/43 – Corporate Transactions & Compliance Blog http://nationalcorp.wordpress.com/www.nationalcorp.com Subscribe to our: Connect with us: 39
  40. 40. This presentation is provided for informational purposes only and should not be relied upon as legal or tax advice. For matters related to the taxation of specific companies or characterization of nonprofit status, please seek the advice of competent legal counsel and/or a CPA professional. Subscribe to our: Connect with us: 40www.nationalcorp.com
  41. 41. Find listings for our current season of webinars and register at: NonprofitWebinars.comA Service Of: Sponsored by:

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