To qualify properly as a nonprofit, businesses must secure a nonprofit, or tax exempt, status from the Internal Revenue Service. The IRS provides the nonprofit organization with a Federal Determination letter, showing the exemption from federal tax.
Nonprofits who wish to have the sales tax exemption must be recognized by the IRS as a nonprofit, file a Nonprofit Application for Sales Tax Exemption (Form NP-20A) and annually file a Nonprofit Organization’s Annual Report (Form NP-20) with the Indiana Department of Revenue.
If the organization has unrelated business income of more than $1,000, it must also complete a Nonprofit Organization Unrelated Business Income Tax form (Form IT-20NP).
The Department also requires a nonprofit to register through INBiz, if:
- It will have employees (withholding taxes)
- It will sell tangible goods for more than 30 days (sales tax)
Jane Q. Public opens an after-school youth center in Indianapolis. The center has a small administrative staff and two counselors on staff and a bookstore, which provides some of their members with employment. The center will also hold an annual fund raiser for two weeks in the summer.
The staff of the center and the bookstore require the center to register with the Department for withholding tax. Because the bookstore sells books, the center must also register for sales tax. The fund raiser will not be required to collect sales tax because it runs less than 30 days, but they must apply for an exempt status for this event with Form NP-20A.
Each year, the center would file a Nonprofit Organization’s Annual Report (Form NP-20). If the income from the bookstore exceeds $1000 per year, the center will also need to file the Nonprofit Organization Unrelated Business Income Tax (Form IT-20NP).
This example shows some of the many possibilities for a nonprofit. This is not meant to provide advice for organizing your business.
For additional help registering your nonprofit, you may e-mail the Department or call us at (317) 232-2045.
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