Most people assume that if an organization is a non-profit, then they’re exempt from sales and use taxes. Not true. I actually did a survey the other day to validate what I thought were the trends. It’s nice to know I was right.
Of the 46 states that have a sales and use tax, only 31 have, what I would call, broad non-profit exemptions. Their laws simply say that organizations such as charitable, educational, religious, research and other not-for-profit organizations are exempt from sales and use taxes.
Frequently, these states use the IRS 501 (c) criteria. Often they use other rules that are more restrictive that the IRS’s requirements. But the end result is that most such organizations will be tax-exempt.
And there are a couple of states where, while the laws aren’t sweeping in their coverage, the individual exceptions are so numerous that the effect is to make most non-profits exempt from tax.
However, there are 15 states that do not have broad exemptions. This means that non-profit organizations are generally taxable in one third of the taxing states! These states all have specific exemptions, usually for schools and youth organizations (like the Boy Scouts and Girl Scouts). And the laws frequently let hospitals, the Red Cross and Habitat for Humanity off the hook. But your average humane society is probably going to be taxable.
Also, keep in mind that, in most cases, even if there is an exemption for an organization, that organization has to go through some paperwork, register and get a number from the state before they actually can buy tax-free.
So don’t assume that a non-profit doesn’t have to pay sales and use taxes. The exemption that you think exists is not there in quite a few states. And even if there is an exemption, make sure it applies and that you have the appropriate paperwork.
The Sales Tax Guy
See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different.
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