Professional Documents
Culture Documents
An Avalara Q&A*
There are roughly 2 million registered tax-exempt nonprofit 501 (c) organizations in the U.S., including churches, schools, civic groups, arts, clubs, labor relations groups, agricultural organizations, political campaigns, ad infinitum. Nonprofits provide a significant boost to many local economies and are an increasingly important driver of national GDP. Despite the prevalence of nonprofits and the common assumption that theyre all tax exempt organizations, misinformation persists. Nowhere is this more evident than in sales tax compliance. There are many circumstances in which a nonprofit is required to pay or collect sales tax on a particular transaction or in general. In both cases, sales tax requirements might exist despite a general IRS exemption. By any measure, the sales tax puzzle faced by nonprofits both on the selling and purchasing side is far more complex than first appears. This Q&A addresses typical areas of confusion regarding nonprofits and sales tax. There are many types of tax-exempt organizations as defined by the IRS, including: 1. 501(c)(2) Title Holding Corporation for Exempt Organization.
2. 501(c)(3) Religious, Educational, Charitable, Scientific, Literary, or Prevention of Cruelty to Children or Animals Organizations. 3. 501(c)(4) Civic Leagues, Social Welfare Organizations, and Local Associations of Employees. 4. 501(c)(5) Labor, Agricultural and Horticultural Organizations. 5. 501(c)(6) Business Leagues, Chambers of Commerce, Real Estate Boards, etc. 6. 501(c)(7) Social and Recreational Clubs 7. 501(c)(8) Fraternal Beneficiary Societies and Associations. 8. 501(c)(9) Voluntary Employee Beneficiary Associations. 9. 501(c)(10) Domestic Fraternal Societies and Association. States define rules regarding these exempt organizations differently. It is incumbent on nonprofits to understand state-specific rules and their implications for transactions within a specific jurisdiction. At minimum, nonprofits typically need to: P Submit an application for recognition with the IRS. P File the appropriate paperwork to maintain exemption status.
1. QUESTION: Which 501 (c) organizations are exempt from paying sales tax? ANSWER: Any can potentially be required to sales tax.
Tax-exemption applied to nonprofits means that in most cases the sales tax for certain sales is waived for transactions relating to the charitys charitable mission. In some states, exemption from paying sales tax depends on the nature and volume of the sales activities by the non-profit. In many states, if a non-profit vendor is engaged in business and making sales of taxable items or services, the non-profit is obligated to collect just like any other vendor. In some cases in states that might excuse collection under other circumstances.
*Please note this document is for information purposes only and in no way constitutes legal advice.
3. QUESTION: Do nonprofits that sell goods or services to consumers need to collect sales tax? ANSWER: In some cases, yes.
It is crucial for nonprofits to understand the significant difference between paying sales tax and the obligation to collect sales tax on goods and services they sell to consumers. Its important to recognize the excuse from collection allowed to some non-profit vendors in some cases does not apply to items they sell. The underlying items are taxable or not based on existing state law whether the non-profit vendor is obligated to collect or not. For merchandise, Tangible Personal Property (TPP) rules apply. For memberships or events, there are special rules applicable for memberships and admissions, we have pro rules for these type activities too. EXAMPLE: In states such as Washington State, nonprofits are required to collect and remit retail sales tax on their sales of goods and services. In others, like Michigan, exemptions offered to nonprofits for purchases of tangible personal property were expanded in 2013. This is great news for nonprofits, but it creates another layer of exemption certificate management complexity.
CONCLUSION
To learn more about your states specific requirements, you can research their codes on nontaxable transactions, sales to nonprofits and other related codes. Alleviate your exposure to audits, with AvaTax Certs. Built to integrate into your financial application, ERP, e-commerce shopping cart or retail POS, AvaTax Certs brings your customer exemption certificates to your fingertipsavailable on demand and across all locations.
Get Started.
To learn more about pricing, view online demonstrations, or chat about AvaTaxs capabilities, visit:
ADDITIONAL RESOURCES
1. Automating the exemption certificate lifecycle:
http://www.avalara.com/resources/whitepapers/automating-the-exemption-certificate-lifecycle
About Avalara
A privately held company, Avalara was founded by a team of tax and software industry veterans to fulfill a vision of delivering an affordable, scalable sales tax solution. Thus making what was not economically feasible in the past for mid-sized business not only affordable, but more accurate as well all with the latest and most innovative technology available. From Bainbridge Island, close to Seattle, Avalaras knowledgeable staff works tirelessly to help customers put the hassles of sales tax compliance out of mind. Avalaras mission is to transform the tax process for customers by creating cost-effective state-of-the-art solutions. The company does so through integrated on-demand, Web-based software services that provide transparent transactions, accurate tax compliance, painless administration and effortless reporting.