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February 2016 • www.CPAPracticeAdvisor.com 31 Determining Status W he t he r nonprof it s , w h ic h a r e classifed under a 501(c) status from t he I R S, have to pay sa les ta x on purchases they make to r un their respective organizations, as well as c h a r ge s a le s t a x w he n t he y s e l l products or ser v ices, depends on state and local tax rules. Some states a l low l i m ited e xempt ions, wh i le others have few restrictions. Tese can vary and be somewhat compli- cated. It may depend on the type of organization, the product, the state a nd/or t he f u nd ra isi ng event. A s s u c h , p r o p e r d u e d i l i g e n c e i s required. Exemption Certifcates M a n y s t a t e s r e q u i r e n o n p r o f i t organizations to apply for sales tax e x empt ion s . T he s t ate s prov ide application forms and instructions f or s u bm it t i n g do c u me nt at ion . M a ny st ates prov ide t a x- e xempt nonproft organizations with actual exempt ion cer t i f icates, a copy of which which the organizations then prov ide to retailers at the point of sale to document the transaction. Ta x payer ident i f icat ion nu mbers (TINs) are used on the exemption certifcates to identif y the organiza- tions. Some states provide resources f o r r e t a i l e r s t o v e r i f y s a l e s t a x exemptions online. To obtain an exemption certif- cate application form, start by vis- it i ng t he webs ite of you r s t ate's division of taxation or charity regis- t r at ion bu re au . W h i le t h i s m ay sound self-evident, make sure you complete all applicable sections on t he appl ic at ion . I n sma l ler non- profts, the application form would p r o b a b l y b e c o m p l e t e d b y t h e organization's executive director; f or l a r g e r no n p r o f i t s , t he c h ie f f i na nc ia l of f icer w i l l most l i kely complete the paperwork. W hile the application w il l ask you to answer general questions on organization name, location and so forth, it may ask you to include the following support documents: • IRS determination leter stating that the organization is exempt from income tax under 501(c)(3). • Certifcate/articles of incorporation, constitution, charter or trust agree- ment. • Bylaws. • Recent copy of a Certifcate of Good Standing from the state where the organization is incor porated, if applicable. • Recent copy of fling with Charities Registration, if applicable. Depend i ng on t he state, t here may or may not be a cost to fle for an exemption. Tere are no specifc de a d l i ne s t o f i le t he f or m , but , depending on upcoming organiza- tional purchases, it behooves you to subm it as soon as possible as the potential cost savings may be con- siderable. A f ter mailing the com- pleted form and supporting mate- r ia ls, you may have to wa it a few weeks for processing and a response. Federally Speaking Tis relates to when the nonproft is t he sel ler of good s a nd ser v ices. According to the IRS, even though an organization is recognized as tax exempt, it still may be liable for tax on i t s u n r e l a t e d b u s i n e s s i n c o m e (U BIT). For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption. A n exempt organization that has $1,000 or more of gross income from an unrelated business must fle Form 990 -T. A n organization must pay estimated tax if it expects its tax for t he yea r to be $50 0 or more. For additional information, search "Tax Information for Charitable Organi- zations" on w w w.irs.gov. "A word of caut ion: Nonprof it organizations are not exempt from being audited by the IRS or a state t a x i n g a u t h o r i t y," s a y s N e i l B . Becour tney, CPA , Ta x Par tner at CohnReznick LLP. "So, just like a for-proft business, nonprofts need to maintain sufcient, accurate records documenting their activities." Sales Tax Issues for Nonprofts by David N. Plaskow, MBA W e tend to think of non- p r o f i t s – t h e p l a c e s w h e r e w e w o r s h i p , adopt our pets, receive our cultural stimula- t i o n , a n d s o o n — a s completely tax exempt organizations. But many of these groups do face sales tax issues, both when they purchase items and when they sell goods and services. David N. Plaskow, M.B.A., was most-recently editor of the award-winning magazine New Jersey CPA. He has nearly 20 years of experience in marketing and communications for nonproft organizations and membership associations. Contact him at dave.plaskow@verizon. A Year in the Life of a SALT Accountant is sponsored by Avalara ax Issues for ccountant by Avalara February SALT Links What Constitutes Doing Business by a Corporation in States Foreign to the State of its Incorporation https://ct.wolterskluwer.com/sites/default/fles/What_Constitutes_Doing_Business_2014.pdf Nexus: It's all about Physical Presence. Or is it? http://peisnerjohnson.com/nexus-it92s-all-about-physical-presence-or-is-it-4/ State government websites https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/State-Links-1 State income tax and extension deadlines http://www.efle.com/state-tax-return-due-dates-deadlines-refund-status/ State Business Incentives Database http://www.stateincentives.org/ Registered Agents – Who Needs Them? http://www.cpapracticeadvisor.com/article/12060486/registered-agents-who-needs-them