Sales Tax Exemptions for Nonprofits

November 18, 2015

Nonprofits are often especially active during the holiday season. During this time of year, we show the famous “Hoosier hospitality” through food kitchens, holiday craft shows, toy collections, bake sales, and much more.
As we get into the spirit of giving, it is important for nonprofits to remember the rules about when they are or aren’t exempt from sales tax. Here’s a quick refresher.

But first, are you a qualified nonprofit?

If you have an organization that buys and sells tangible personal property but does not make a financial profit, you would generally be classified as a nonprofit corporation. To register as a nonprofit and qualify to receive sales tax exemptions, you must:

  • Qualify properly as a nonprofit by securing a nonprofit, or tax exempt, status from the Internal Revenue Service (IRS). The IRS will provide you with a Federal Determination letter, showing the exemption from federal tax.
  • Nonprofits who wish to have the Indiana sales tax exemption must 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.

Nonprofits making sales

If you sell items for 30 days or less during a calendar year (it doesn’t matter if they are consecutive or not), your sales will be exempt from sales tax. That means during your annual ornament sale, you do not need to collect Indiana’s seven percent sales tax!
If you engage in sales for 31 or more days during a calendar year, you must register as a retail merchant and collect sales tax. Find details at www.in.gov/dor/3968.htm if you think you’re in this category.

Nonprofits making purchases

If you’re a qualified and registered nonprofit, you will be exempt from paying sales tax on some of your purchases. Here are some of the requirements for exempt purchases:

  • The item purchased must be used for the same purpose for which your organization is exempt.
  • The transaction must be invoiced directly to your nonprofit organization and paid directly via your organization’s funds.
  • Purchases for the private benefit of any organization member, such as meals and lodgings, are not eligible for exemption.

For each of these exempt purchases, you will need to complete Form ST-105 and provide it to the vendor from whom you are purchasing an item. The form tells the vendor it is ok to not charge you sales tax. The vendor must use the form to verify you are sales tax exempt and must keep a copy to show the department if audited.
Here are a few notes about completing Form ST-105:

  • It should be signed by a responsible business representative – a board trustee, a secretary/treasurer or in some cases a pastor/minister.
  • It should be updated periodically as circumstances, staff, or other details change.
  • It can be issued to a vendor on a “blanket” basis (there is a checkbox on the form) for vendors from whom you purchase regularly. In these cases, you would not need to repeatedly provide the form.
  • It is a vendor’s responsibility to grant sales tax exemptions only to those who present qualified and correctly completed exemption certificates, so be sure your Form ST-105 is correctly and fully completed.

Resources

As always, don’t hesitate to contact the department if you have questions about your nonprofit. Here are a few resources to help: