When completing a sales tax exemption certificate, a nonprofit should be certain to complete the form in full and avoid an simple mistakes that may delay processing. In the state of Illinois, “…organizations must obtain an exemption identification number (an “E” number) to qualify” for a state sales tax exemption.” For example, in Illinois companies who qualify as exempt according to the IRS cannot assume that their exemption qualifies them for exemption from sales tax at the state level. Even though the federal government awards federal tax-exempt status, a state can require additional documentation to honor it. The research to determine whether or not sales tax is due lies with the nonprofit. Whether or not nonprofits have to pay sales tax on taxable purchases depends on the state and local tax rules that apply to that transaction. Common exemption certificate activities include certificate verification, storage, associating transaction with certificate, and managing expiration and renewal notifications. The burden of keeping records of exemption certificates also lies with the seller. To substantiate tax-exempt status, a nonprofit must present a business with a valid, timely, and accurate certificate of sales tax exemption for each applicable jurisdiction. File the appropriate paperwork to maintain exemption status.Submit an application for recognition with the IRS.At a minimum, nonprofits typically need to: It is incumbent on nonprofits to understand state-specific rules and their implications for transactions within a specific jurisdiction or industry. States define rules regarding these tax exempt organizations differently. 501(c)(10) - Domestic Fraternal Societies and Association.501(c)(9) - Voluntary Employee Beneficiary Associations.501(c)(8) - Fraternal Beneficiary Societies and Associations.501(c)(7) - Social and Recreational Clubs.
501(c)(6) - Business Leagues, Chambers of Commerce, Real Estate Boards, etc.501(c)(5) - Labor, Agricultural and Horticultural Organizations.501(c)(4) - Civic Leagues, Social Welfare Organizations, and Local Associations of Employees.501(c)(3) - Religious, Educational, Charitable, Scientific, Literary, or Prevention of Cruelty to Children or Animals Organizations.
501(c)(2) - Title Holding Corporation for Exempt Organization.There are many types of tax-exempt organizations as defined by the IRS, including: In some cases in states that might excuse collection under other circumstances. In many states, if a non-profit vendor is engaged in business and making sales of taxable items or services, the non-profit is obligated to collect just like any other vendor. Tax-exemption applied to nonprofits means that in most cases the sales tax for certain sales is waived for transactions relating to the charity’s “charitable mission.” In some states, exemption from paying sales tax depends on the nature and volume of the sales activities by the non-profit.