Nutty Rules: Georgia and the DAR

I did a "Taxing Policies" webinar for Georgia today.  While putting the finishing touches on my research, I took note of their rules for non-profit organizations.  Georgia is one of those states that doesn't have a broad exemption for non-profit organizations.  In fact, they only have exemptions for a handful of groups.   But one of those few is the Daughters of the American Revolution.  Now, I've looked at Georgia's rules many times before, but it hit me this time because the wife of a friend just became a "daughter."

Here are the questions that leap to mind.  First, how can they justify this treatment?  They don't have a similar exemption for the Sons of the American Revolution!  Which sounds vaguely discriminatory.  And why in the hell (oops, we're talking about the DAR here) -  I'll start over.  Why in the heck would they give an exemption for the DAR when they don't even exempt the Boy Scouts and Girl Scouts?!?  Seems...tacky.

Hmmmm.  I'll just let these float out there as rhetorical questions.  Because I'm absolutely sure there's a perfectly valid reason.

Nothing to see here.  Move along.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer - this is for education only.  Research these issues thoroughly before making decisions.  Remember: there are details that haven't been discussed, and every state is different.  Here's more information

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Whenever the conversation goes this way, I cringe

Frequently, someone will say to me, either in a seminar or in a comment or email “we’re a manufacturer so we’re exempt from sales and use taxes".

If I’m feeling frisky, I’ll usually interrupt them and say, "No you’re not."

They’ll be nonplussed and say, "Oh yes, we’re a manufacturer. We make doo dads."

"No, you’re not exempt because you’re a manufacturer. You’re exempt on some of your purchases because you use them in manufacturing. All of your purchases aren't exempt. And your sales aren’t exempt."

"Well, yeah, OK. If we buy a copier for the office, it's taxable. But everything in the plant is exempt. And we don't have to charge tax on what we sell."

"I'm guessing you're not charging tax on what you sell because you're selling it to others who are buying it for resale. It's got nothing to do with the fact that you're a manufacturer. Hopefully your'e getting resale certificates. And that bit about 'everything in the plant is exempt' is wrong."

Arrrrgggghhhhh! And then I cringe.

Not understanding these exemptions is a dangerous trap to fall into. Manufacturers, in many states, can buy materials and equipment tax free if the purchase will be directly used in the manufacturing process. The rules vary enormously by state, from California who gives virtually no exemptions, to Pennsylvania who is pretty generous. But there aren't any states that just say, "You're a manufacturer so you're exempt."

The only types of organizations that can even begin to make a claim that they're "exempt" are non-profits and government agencies. But even in those situations, the exemption is not total. There are usually restrictions on how they use their purchases and what they can sell tax free. And some states don't even have the exemptions.

Frankly, the only organization that can truly make the claim that they're exempt is the federal government.

So please remember that it's your specific types of sales, purchases, and use that are exempt. The rules are restrictive and they vary from state to state. So don't go around saying you're exempt. You're not.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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.  Here's more information

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Don't forget our upcoming seminars and webinars.
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Non-Profits Aren't Always Exempt

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.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

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.

Get these articles in your inbox - subscribe at http://salestaxguy.blogspot.com

Here's information on our upcoming seminars and webinars.
http://www.salestax-usetax.com/

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.

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We're a Non-Profit!

Big deal! So what?

I’m being rude and crude to point out that just because the IRS says you’re a non-profit organization (or not-for-profit, if you'd prefer) may mean absolutely nothing for sales tax and/or use tax purposes.

I’d estimate that close to one third of the states do not provide a broad exemption from sales and use tax for purchases made by non-profit organizations. And even if you are exempt in your state, that exemption means nothing in other states, where you might be doing a trade show, providing services, have an office, etc.

For example, let's say you're a non-profit organization in Nashville and you're registered with the state of Tennessee and have your number, certificate, etc. If you happen to be in Huntsville for a meeting and need a replacement laptop, the Huntsville OfficeMax is going to laugh at you when you try to use your Tennessee exemption in Alabama. OK, they may not laugh at you, but if they're paying attention, they're going to push the form back at you and apologize. Because that Tennessee exemption doesn't work in Alabama.

States that do provide a broad exemption often have their own criteria and don’t just default to the IRS rules. So you might be a 501(c)(3) located in Illinois, for example, but still not qualify to be exempt from SUT in Illinois.

Some states are very specific about who is exempt on their purchases. For example, Louisiana has few exemptions. But if you operate a free hospital, you can buy tax-free. However, it has to be a free hospital. If you're the average hospital in Louisiana, even a non-profit, you have to pay sales tax and/or use tax on your purchases.

Even if your purchases are exempt, states generally require non-profits to collect tax on their sales, just like regular businesses. There are exceptions for fund-raising events (often under occasional sales rules) and some admissions charges, but they vary dramatically from state to state. So if your organization sells stuff, particularly on a regular basis, you should assume you have to collect tax.

And you also have to worry about the nexus you may have in other states, just like regular businesses.

In other words, this entire topic of sales and use taxes may apply to you! Your purchases might be exempt, but your sales are likely to be taxable. It all depends on what states you operate in, and how and what you sell.

Oh, and vendors. If you sell to non-profits and have been assuming they're exempt all this time, you may be in for a rude shock when you get audited.

Sales Tax Guy

See disclaimer and research the issues thoroughly before making decisions

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