DEPARTMENT OF STATE REVENUE
Information Bulletin #10
Sales Tax
May 2022
(Replaces Bulletin #10 dated September 2020)
Effective Date: July 1, 2022
SUBJECT: Application of Sales Tax to Nonprofit Organizations
DISCLAIMER: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is not consistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the information provided herein should serve only as a foundation for further investigation and study of the current law and procedures related to the subject matter covered herein.
Aside from nonsubstantive, technical changes, this bulletin has been updated to reflect changes in Senate Enrolled Act 382 (2022).
This bulletin concerns the application of Indiana sales and use tax to nonprofit organizations. This bulletin will discuss when sales tax must be collected by nonprofit organizations and when Indiana sales and use tax must be paid on purchases by nonprofit organizations.
When taxable retail sales are made by nonprofit organizations, the organization must register with the Nonprofit Section of the Indiana Department of Revenue (the department) and receive a taxpayer identification number.
Indiana nonprofit organizations making tax-exempt qualified purchases, but not making retail sales, also must register with the Nonprofit Section of the department and receive a taxpayer identification number. A nonprofit organization must register for a sales tax exemption by filing Form NP-20A, which can be filed using the department's online e-services portal, called the Indiana Taxpayer Information Management Engine (INTIME), by visiting intime.dor.in.gov. Once a nonprofit has been registered with the department, they will be able to obtain a specially-issued exemption certificate through INTIME beginning July 1, 2022. NOTE: An organization that has been classified as a "social" organization by the Internal Revenue Service (IRS), including homeowner's associations, are not allowed to make purchases exempt from Indiana sales and use tax.
Nonprofits that are temporarily in Indiana, such as those who are here for short events or conventions, may request a temporary exemption certificate by filing for Form NP-20T, which will be available beginning July 1, 2022. The specially-issued exemption certificate will be in the form of a letter issued by the department.
For filing and reporting requirements for nonprofits, please refer to Income Tax Information Bulletin #17, available online at in.gov/dor/legal-resources/tax-library/information-bulletins/income-tax-information-bulletins/.
III. QUALIFIED NONPROFIT ORGANIZATIONS
For purposes of the nonprofit exemptions described throughout this bulletin, a "qualified nonprofit organization" means any of the following types of organizations:
1. A fraternity, a sorority, or a student cooperative housing organization connected with and under the supervision of a postsecondary educational institution if no part of its income is used for the private benefit or gain of any member, trustee, shareholder, employee, or associate.
2. Any institution, trust, group, united fund, affiliated agency of a united fund, nonprofit corporation, cemetery association, or organization that is organized and operated exclusively for religious, charitable, scientific, literary, educational, or civic purposes if no part of its income is used for the private benefit or gain of any member, trustee, shareholder, employee, or associate.
3. A group, an organization, or a nonprofit corporation that is organized and operated for fraternal or social purposes, or as a business league or association, and not for the private benefit or gain of any member, trustee, shareholder, employee, or associate.
4. A hospital licensed by the state department of health, shared hospital services organization exempt from federal income taxation by Section 501(c)(3) or 501(e) of the Internal Revenue Code, labor union, church, monastery, convent, school that is a part of the Indiana public school system, parochial school regularly maintained by a recognized religious denomination, or trust created for the purpose of paying pensions to members of a particular profession or business who created the trust for the purpose of paying pensions to each other, if the taxpayer is not organized or operated for private profit or gain.
IV. SALES BY QUALIFIED NONPROFIT ORGANIZATIONS
Until July 1, 2022, sales of tangible personal property by qualified nonprofit organizations carried on for a total of not more than 30 days in a calendar year and engaged in as a fundraising activity to raise funds to further the qualified nonprofit purposes of the organization are exempt from sales tax. The 30-day rule applies to all such sales by the nonprofit organization. Each day in which selling activities are conducted is a "selling day" for purposes of determining whether a qualified nonprofit organization has conducted sales for more than 30 days during any calendar year. This provision applies to social organizations as well as other qualified organizations. If an organization conducts sales or fundraising activities during 31 or more days (not necessarily consecutive) in a calendar year, the organization is a retail merchant and must collect sales tax on all sales made during the calendar year.
However, effective July 1, 2022, the 30-day rule was repealed and replaced with a different threshold. Sales of tangible personal property by qualified nonprofit organizations of not more than $20,000 in a calendar year used to raise funds to further the qualified nonprofit purposes of the organization are exempt from sales tax. The $20,000 rule applies to all such sales by the nonprofit organization. Once sales of an organization reaches $20,000, the organization is required to collect state gross retail tax on sales on an ongoing basis for the remainder of the calendar year. Furthermore, the sales of an organization include sales made by all units operating under the organization's registration with the department. These provisions also apply to social organizations as well as other qualified organizations.
NOTE: For the 2022 calendar year, a nonprofit is subject to the 30 day rule through June 30, and beginning July 1, the $20,000 rule. However, even though the $20,000 rule becomes effective July 1, a nonprofit that has over 30 selling days before July 1 will be required to collect sales tax throughout the entire year, even if they do not reach $20,000 in sales after July 1. Conversely, a nonprofit that has reached $20,000 in sales for the year any time before July 1 will not count those sales towards determining whether they should collect sales tax. Only the sales made after June 30 should be counted. For the 2023 calendar year, only the $20,000 rule will apply.
Example: From January to June, a nonprofit has 20 selling days including a major event in June, where it sells $100,000 of souvenirs. Because it has not surpassed 30 selling days, and the $100,000 in sales occurred before July 1, it has no obligation to collect sales tax, as it is still under the thresholds for the 30 day rule. Further, if the nonprofit only makes $15,000 in sales from July 1 to the end of the year, then it still has no obligation to collect sales tax because it is under the $20,000 threshold, as the $100,000 in sales at the June event do not count towards the threshold. This is true even if they had 11 more selling days after June 30, as the nonprofit stops counting selling days after June 30, 2022 when the rule expires.
Example: Like the nonprofit above, another nonprofit has 20 selling days from January to June. However, this nonprofit's major event is in August, where it sells $100,000 of souvenirs. This nonprofit would be required to begin collecting sales tax after this event in August, because it hit the new threshold after July 1, 2022. It would not be responsible for any tax for any sales made during or prior to the event.
Example: A nonprofit has 65 selling days during January through June, so it has registered to collect sales tax. It must keep collecting sales tax on and after July 1, even if it doesn't reach $20,000 in sales from July 1 through the end of the year.
All organizations required to collect sales tax must register with the Department of Revenue and get a Retail Merchant Certificate. They also must register as nonprofit organizations. An organization can register with the department for sales tax, county innkeepers' tax, and food and beverage tax by visiting the State of Indiana's INBiz website, which allows businesses to register with multiple state agencies, at inbiz.in.gov. A separate application is required for each business location. The nonrefundable application fee for a Retail Merchant's Certificate is $25.
Upon registration and for the first full year, the nonprofit will be required to file sales tax returns (Form ST-103) based on their taxable sales volume for the preceding calendar year, as determined by the department. Sales tax returns must be filed using INTIME. Even if no tax is due for a particular period, a return must still be filed (called a "zero return").
However, when the nonprofit organization sells items, such as periodicals, books, or other property, that are intended primarily to further the educational, cultural, or religious purposes of the organization or for the improvement of the work skills or professional qualifications of the organization's members, and the sales are not used in carrying out a private or proprietary business, the 30-day restriction/$20,000 cap does not apply and the items may be sold exempt throughout the year.
V. SALES BY A NONPROFIT FORMED TO SUPPORT A PUBLIC LIBRARY
Sales of tangible personal property by a nonprofit formed to support a public library (e.g., a "Friends of the Library" group), are exempt from the state gross retail tax if the property sold consists of:
(1) items in a public library's circulated and publicly available collections, including items from the library's holdings; or
(2) items that would typically be included in the public library's circulated and publicly available collections and that are donated to a public library or to a nonprofit formed to support a public library by individuals or organizations.
In other words, nonprofits formed to support a public library do not have to collect and remit sales tax on their normal sales of used books, videos, and other items from a library's collection. However, this exemption does not apply to any other sales of tangible personal property by a nonprofit formed to support a public library (e.g., food and beverages, furniture, and artwork). The sale by nonprofits formed to support a public library of these other types of tangible personal property would be subject to the rules outlined in Section III above.
VI. PURCHASES BY NONPROFIT ORGANIZATIONS
To qualify for a sales tax exemption on purchases as a nonprofit organization, the following conditions must be met:
1. The person must be any of the qualified nonprofit organizations described in Section III above.
2. The organization must not be operated predominantly for social purposes.
3. The article purchased must be used for the same purpose as that for which the organization is being exempted, and the transaction must be invoiced directly to the nonprofit organization and paid directly via the organization's funds. Purchases for the private benefit of any member of the organization, such as meals and lodgings, are not eligible for exemption.
Example: A nonprofit organization is hosting a three-day convention for its members in Indianapolis. The organization rents meeting rooms in a hotel to conduct its educational meetings. The rental of the rooms will be exempt from the sales tax and local county innkeepers' tax, if applicable.
Sales of meals during a meeting of the organization are taxable because the meals are provided for the convenience of the organization and its members. Such meals are taxable even when served in conjunction with a meeting that is furthering the organization's nonprofit purpose.
At the same convention, the organization reserves and pays for, out of its treasury, the cost of four hotel rooms to be used by its officers for lodging. The lodgings provided for the officers by the organization are not exempt from the sales tax or the county innkeepers' tax, if applicable. The rental of rooms for its officers or members is a private benefit for the individual and is not for the purpose for which the organization exists.
If a member of the organization purchases a meal or lodging, even if the member is to be reimbursed by the organization, the purchase is not exempt and the member must pay sales tax at the time of purchase. Purchases used for social purposes are never exempt.
NOTE: The fact that an organization is incorporated as a nonprofit corporation or is being exempted from income tax by the IRS does not necessarily mean that purchases made by the nonprofit organization are exempt from sales/use tax.
Organizations, as previously described, that are registered with the Indiana Department of Revenue as nonprofit organizations may purchase exempt from Indiana sales and use tax tangible personal property used in carrying out the nonprofit purpose of the qualified organization. To purchase tax exempt, the organization must register with the department no later than 120 days after the taxpayer's formation, after which the organization can obtain a Form NP-1 (Indiana Nonprofit Sales Tax Exemption Certificate) from INTIME.
Purchases by Non-Indiana Nonprofit Organizations
Nonprofit organizations not registered with the Indiana Department of Revenue and located in another state may use a Streamlined Sales Tax Governing Board Form F0003 to make purchases exempt from the sales tax.
Tangible personal property purchased for resale by a nonprofit organization is eligible for the sales tax exemption.
Purchases by Social Organizations
Purchases of tangible personal property to be used by organizations organized and operated predominantly for social purposes are not exempt. If more than 50% of an organization's expenditures is related to social activities, the organization is considered to be predominantly organized and operated for social purposes. Examples of expenditures related to social activities include:
• Food and beverage services;
• Other similar social activities.
This bulletin applies only to the status of nonprofit organizations under the sales tax statute. Nonprofit organizations are subject to the Adjusted Gross Income Tax Act on unrelated business income as defined in Internal Revenue Code Section 513. Homeowners' associations do not qualify for sales tax exempt status under Indiana law.
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Posted: 06/08/2022 by Legislative Services Agency
DIN: 20220608-IR-045220192NRA
Composed: Apr 25,2024 12:12:25AM EDT
A
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