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1. QUESTION: Which 501 (c) organizations are exempt from paying sales tax?
ANSWER: Any can potentially be required to sales tax.
Tax-exemption applied to nonprofits means that in most cases the sales tax for certain sales is waived for transactions relating to the charitys charitable mission. In some states, exemption from paying sales tax depends on the nature and volume of the sales activities by the nonprofit. 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. In some cases in states that might excuse collection under other circumstances.
*Please note this document is for information purposes only and in no way constitutes legal advice.
EXAMPLE: In Florida, all entities, except federal agencies, wishing to qualify for sales tax exemptions to complete an Application for Consumers Certificate of Exemption (Form DR-5). In many cases, exemption certificates expire 5 years after the date of issuance and are subject to review and reissuance procedures.
3. QUESTION: Do nonprofits that sell goods or services to consumers need to collect sales tax?
ANSWER: In some cases, yes.
It is crucial for nonprofits to understand the significant difference between paying sales tax and the obligation to collect sales tax on goods and services they sell to consumers. Its important to recognize the excuse from collection allowed to some non-profit vendors in some cases does not apply to items they sell. The underlying items are taxable or not based on existing state law whether the non-profit vendor is obligated to collect or not. For merchandise, Tangible Personal Property (TPP) rules apply. For memberships or events, there are special rules applicable for memberships and admissions, we have pro rules for these type activities too. EXAMPLE: In states such as Washington State, nonprofits are required to collect and remit retail sales tax on their sales of goods and services. In others, like Michigan, exemptions offered to nonprofits for purchases of tangible personal property were expanded in 2013. This is great news for nonprofits, but it creates another layer of exemption certificate management complexity.
CONCLUSION
To learn more about your states specific requirements, you can research their codes on nontaxable transactions, sales to nonprofits and other related codes. Alleviate your exposure to audits, with AvaTax Certs. Built to integrate into your financial application, ERP, e-commerce shopping cart or retail POS, AvaTax Certs brings your customer exemption certificates to your fingertipsavailable on demand and across all locations.
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To learn more about pricing, view online demonstrations, or chat about AvaTaxs capabilities, visit:
ADDITIONAL RESOURCES
1. Automating the exemption certificate lifecycle:
http://www.avalara.com/resources/whitepapers/automating-the-exemption-certificate-lifecycle
About Avalara
A privately held company, Avalara was founded by a team of tax and software industry veterans to fulfill a vision of delivering an affordable, scalable sales tax solution. Thus making what was not economically feasible in the past for mid-sized business not only affordable, but more accurate as well all with the latest and most innovative technology available. From Bainbridge Island, close to Seattle, Avalaras knowledgeable staff works tirelessly to help customers put the hassles of sales tax compliance out of mind. Avalaras mission is to transform the tax process for customers by creating cost-effective state-of-the-art solutions. The company does so through integrated ondemand, Web-based software services that provide transparent transactions, accurate tax compliance, painless administration and effortless reporting.