So you’re a tax-exempt organization, but is your organization exempt from taxes?
It’s a confusing question, I know.
When you receive your IRS designation as a tax-exempt nonprofit, that generally means (among other things) that for federal purposes, your organization’s income will not be taxed as if it were a business or as if it were your personal income. However, even though you have tax-exempt status with the IRS and have registered with the Commonwealth of Pennsylvania as a nonprofit, you will still pay Pennsylvania sales tax on the items you purchase for your organization. If you don’t buy much, then it isn’t a big issue, but many organizations need to buy substantial materials, supplies, office items, and the like, and the costs can add up.
Many people think that the sales tax exemption is automatic or that it is enough to simply tell the store manager that they are buying things for a nonprofit. However, the organization must actually complete an application and send it to the Pennsylvania Department of Revenue for processing. (Note: You do not need IRS tax-exempt status to be approved for the Pennsylvania sales tax exemption.) The application takes a bit of time and patience, as well as a significant amount of financial information, but it can pay off to go through the process if your organization makes a lot of taxable purchases.
If your application is approved, you will then need to complete a one-page exemption certificate that must be provided to vendors when you make your purchases. This certificate serves as a receipt of sorts for the vendor, showing why they did not charge your organization any sales tax.
Take note that this sales tax exemption does not exempt your organization from charging other people sales tax on items that your nonprofit may be selling, however. If you make taxable sales to the general public, you should determine whether you need to register for a sales tax license number.
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Please note: This blog is intended as general educational information only, and should not be considered legal advice or a substitute for consulting a lawyer.