You have started your nonprofit and you have applied to the IRS for a federal exemption, but wait, that does not mean you are exempt from filing state taxes, paying local sales taxes or registering your charity in each state. Approximately 40 states require you to file a state charity registration application, several require you to apply for a corporate license and some you will need state tax exemptions.
These application processes are completely different than Federal tax exemption. The state charity registration is your organization notifying the state that you will be soliciting its residents for donations. The application that you provide to them is there way of assuring transparency to their citizens. Looking for an exemption from filing a state charity registration application? Well, good luck!! Those laws have more loop holes than an amusement park.
One hundred percent of all states offer some type of exemption but qualifying for that exemption and keeping it is a different story. Each state law has its own definitions and requirements for those exemptions. Some states only require an initial letter notifying them that your organization believes it is exempt while others require you to file an application for approval to the state charity office and a few require annual notifications. In those states the fees are reduced for the exemption not the required paperwork.
Here are some common state exemptions:
Revenue <$25,000 (can vary from $5,000 to $50,000)
Educational Institutions or their supporting groups
Membership Organizations – Fraternal, Social, alumni, or professional
Veteran’s Organizations including Police, Fire and Rescue Groups
Political Party or Candidates for Office
Donations for a Specified Individual
Some other not so common state exemptions:
Boys and Girls Clubs
Less than 10, 35 or 100 Donors per Year
As noted before, and will be discussed in our next post on the common exemptions, each of these exemptions have their own requirements designated by the state where you are soliciting donations. They are not only determined by the state where you are physically located but in each state where you are soliciting donations. You may be exempt in your home state but not in others; as well as your organization could be exempt in foreign states but not your state of origination.
If you have any comments, questions or concerns, please contact us at 800-780-6027 or firstname.lastname@example.org for more detailed answers.