Sales Tax Exemptions for Nonprofits

November 15, 2017

“Hoosier Hospitality” is at its highest during the holiday season, especially for nonprofit organizations.

Pageants, food kitchens, holiday craft shows, toy collections, bake sales, and other activities send volunteers bustling to the stores for supplies.

During the helter-skelter of the holidays, it’s sometimes difficult to remember the rules regarding sale tax exemptions. Here’s a quick refresher.

Is the organization a qualified nonprofit?

Generally, if the organization buys and sells personal property but does not make a financial profit, it would be classified as a nonprofit corporation. To register as a nonprofit and qualify to receive sales tax exemptions, the organization must:

• Secure a nonprofit, or tax-exempt, status from the Internal Revenue Service (IRS). The IRS will provide the organization with a Federal Determination letter, showing the exemption from federal tax.

• To receive an Indiana sales tax exemption, the organization 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 a qualified non-profit organization sells items for 30 days or less during a calendar year (it doesn’t matter if days are consecutive or not), sales will be exempt from Indiana’s seven percent sales tax.

If the organization engages in sales for 31 or more days during a calendar year, then it must register as a retail merchant and collect sales tax. Find more details at www.in.gov/dor/3968.htm.

Nonprofits making purchases

If the organization is a qualified and registered nonprofit, it will be exempt from paying sales tax on some 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 the 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, an organization representative will need to complete Form ST-105 and provide it to the vendor from whom the item(s) are purchased. The form tells the vendor it is ok not to charge the purchaser sales tax. The vendor must use the form to verify that purchaser is a representative of a qualified, sales tax exempt nonprofit. The vendor must keep a copy to show the Department of Revenue 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 provide the form repeatedly.

• It is a vendor’s responsibility to grant sales tax exemptions only to those who present qualified completed exemption certificates, so be sure the Form ST-105 is accurately completed when presented to the vendor.

Resources

For questions about your organization’s sales tax exemption, call our sales tax hotline at (317) 233-4015.

To read more details about your nonprofit’s purchases or how to handle unique sales tax exemption situations, check out our Sales Tax Information Bulletin #10.

To learn more about registering as a nonprofit, visit http://www.in.gov/dor/3968.htm.

To read a complete guide on taxes nonprofits may be required to collect and remit, read our ITWncome Tax Information Bulletin #17.