Think NM Memo: Nonprofit Sales Tax By State

Memo - May 25, 2017

Purpose

To determine how different states apply sales tax to purchases made by nonprofit organizations

Nonprofits and Sales Tax

Many nonprofit organizations can be potentially required to pay sales tax, but many states offer organizations meeting certain criteria opportunities for exemption, or alternatively, for reimbursement.

Rhode Island state law exempts certain nonprofit organizations from paying tax on their purchases. These include sales to hospitals, churches, orphanages and other exempt charitable and religious organizations; nonprofit hospitals and educational institutions, interest-free loan associations; organized sporting leagues and associations; bands for boys and girls under 19 years of age; certain vocational organizations; senior citizens’ clubs exclusively composed of persons over 61 years; and parent-teacher associations. Each organization falling under these categories must file for and obtain an exemption certificate from the state tax administrator.

Many states which implement a sales tax have comparable policies where the nonprofit organization must apply for an exemption document, but the application method can vary. In Florida, all organizations wishing to qualify for a sales tax exemption must complete an Application for Consumer’s Certificate of Exemption, which expires and must be renewed after 5 years. Kansas and Illinois require a letter of request for each purchase, while states including Connecticut and Michigan only necessitate the purchaser to provide vendors with a form stating the purchaser is exempt. Wyoming only requires nonprofits to provide the state with a copy of the organization’s IRS determination letter in order to receive an exemption approval.

In North Carolina, nonprofits must pay sales tax. However, the state law provides qualified organizations (i.e. nonprofit hospitals, volunteer fire departments and emergency medical services, and other organizations exempt from income tax per 501[c][3]) with a semiannual refund of sales tax paid on direct purchases of tangible property, digital property, and services for use in furthering their nonprofit mission.

See complete memo with chart of states that offer overall sales tax exemptions vs. states that do not offer overall sales tax exemptions.