Does your nonprofit organization purchase tangible goods at retail, like office supplies, furniture, or computers? If so, it may qualify for exemption from state sales tax on such purchases, with substantial resulting savings. That’s great news! Keep in mind though that sales tax exemption is state-specific. Each state has its own exemption qualification requirements, application process, and renewal aspects. So if a nonprofit buys goods elsewhere, such as for out-of-state conferences or a new program office, it may need to apply for sales tax exemptions in other states.
Not all state sales tax exemptions are created equal. Many state sales tax exemptions are available only to Section 501(c)(3) tax-exempt organizations (e.g., churches, charities, schools, social service organizations), but other qualification requirements may apply. In addition, many states exclude certain purchases like hotel occupancy. Some states provide no sales tax exemption for nonprofits; a few states don’t impose sales tax at all. Here are samples from various jurisdictions including our law firm’s home states of Illinois and South Carolina.
Illinois is fairly strict. A nonprofit must apply for sales tax exemption to the Illinois Department of Revenue with corporate documents, financials, evidence of its Section 501(c)(3) tax-exempt status, and program information showing that is organized and operated exclusively (i.e., primarily) for charitable, religious, or educational purposes. Applicants that charge fees face a steep evidentiary burden. They must show that such fees are not charged with any “view to profit,” but rather solely to cover actual expenses. Notably, this exemption does not include taxes on hotel occupancy.
The turnaround time for applications is usually about four to six weeks. Upon approval, the nonprofit will receive an exemption letter. This letter may be duplicated, and organizational representatives should be prepared to present a copy when making retail purchases on the organization’s behalf. Illinois sales tax exemptions are renewable every five years, with updated information showing continued qualification for exemption. For additional information about Illinois exemption, please see our law firm’s November 2014 blog article.
2. South Carolina
South Carolina is one of the few states that does not offer a general sales tax exemption for purchases made by nonprofit organizations. That information is the end of the story for many nonprofits. Note that a very limited exemption is available, however, if the purchased items are to be resold and provided that other conditions are met.
Like Illinois, Indiana provides for sales tax exemption but with a simpler application process. A nonprofit must register for sales tax exemption by filing Form NP-20A and submitting a copy of its Section 501(c)(3) IRS determination letter, to the Indiana Department of Revenue. The organization will then receive a taxpayer identification number (TIN). The organization will need to complete the Form ST-105 when making purchases, and include its TIN. Note that such exemption is not available for purchases of meals or hotel occupancy. The nonprofit will also need to file the Form NP-20 annual report, which is due four and a half months after the end of the organization’s fiscal year (e.g., May 15 for a calendar fiscal year).
Out-of-state nonprofit purchasers may reportedly use the Form ST-105 without registering for Indiana sales tax exemption, provided that they are registered with their home state’s taxing authority and that Indiana’s own law allows for such exempt purchases. Depending on the nonprofit and its home state’s exemption laws, it may be preferable to apply for the Indiana sales tax exemption.
Ohio is quite straightforward. No exemption application is required. Charitable organizations that qualify as Section 501(c)(3) organizations may simply provide vendors with a completed Sales and Use Tax Exemption Certificate at the point of purchase. The “Blanket” version may be used for multiple purchases, and the “Unit” version may be used for single purchases. As with many other states, Ohio’s sales tax exemption does not apply to hotel occupancy taxes.
In Wisconsin, a nonprofit may apply to the Wisconsin Department of Revenue, using Form S-103 and providing a copy of its IRS determination letter and corporate charter. Upon approval, the nonprofit will be issued an exemption number. The nonprofit must then include such number and use Form S-211 when making retail purchases. As in Indiana, an out-of-state nonprofit may make exempt retail purchases in Wisconsin without obtaining a Wisconsin exemption certificate. Wisconsin sales tax exemption includes hotel occupancy, so long as the hotel bill is issued in the nonprofit’s name.
Sales tax exemption is easy to obtain in Texas – simply by filing the Form AP-204-2 application and providing the nonprofit’s IRS determination letter to the Texas Comptroller of Public Accounts – Exempt Organizations Section. Approved nonprofits may make exempt purchases by presenting a completed certificate to vendors at the time of purchase, using Form 01-339.
Exemption from state (but not local) hotel occupancy tax is available, but only to narrow classes of Section 501(c)(3) charities: (a) those that devote all or substantially all of its activities to the alleviation of poverty, disease, pain and suffering by providing food, shelter, and medical treatment; (b) schools; and (c) churches and other religious institutions.
7. Maryland and Washington, D.C.
Maryland and Washington, D.C. are notable in that sales tax exemption contains a physical office and related activity requirements. For D.C. exemption, the nonprofit applicant must also be registered to do business in D.C. For the Maryland exemption, the physical office requirement may be satisfied by a location in an adjacent jurisdiction, but the nonprofit must provide services within Maryland on a regular basis.
Given the above legal landscape, a nonprofit making retail purchases in multiple states should pay careful attention to potentially available sales tax exemption options. If the nonprofit operates regularly in a particular state, the nonprofit’s leadership should determine whether a sales tax exemption is available and the application for the nonprofit’s intended purchases. If advantageous, evaluate the eligibility requirements, elements for the application process, procedures for use of the exemption, and whether any renewal or other reporting is required. By obtaining state sales tax exemption, a nonprofit demonstrates wise stewardship of its charitable resources by saving money on its retail purchases.