| Here’s something that trips up even seasoned nonprofit ops leaders: your IRS determination letter doesn’t automatically exempt you from state sales tax (read that again!). Do you have a state-issued exemption certificate, not just your IRS letter? If you’re not sure, it’s worth taking 15 minutes to find out. Federal and state tax regimes are separate animals, and most states require a separate application, even if the IRS already recognizes your organization as a 501(c)(3). Think about everything your organization buys: office supplies, equipment, event materials, furniture, and so on. For the sake of illustration, at a 7% sales tax rate, $50,000 in annual purchases means $3,500 that could be funding your charitable programs instead of going into state coffers. The fix? Charities can apply for a state-level sales tax exemption (typically, they need their IRS determination letter and organizing documents on hand to do this). States usually provide a certificate or exemption number for organizations to use with vendors, enabling them to make purchases without paying sales tax. Be aware that some states do require periodic renewal, and if your organization operates in multiple states, it might need exemptions in each one. Also, don’t forget to register the exemption with online businesses you frequent, like Amazon—otherwise you’re still paying tax on those orders. |
Is Your Nonprofit Leaving Money on the Table? The Tax Exemption Most Organizations Forget
- Ann Porter
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Meet Ann
Before starting this practice, I served as General Counsel of a major international nonprofit—so I know firsthand how legal questions show up in the middle of real organizational decisions.
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