Posted by tom45 on Sep 12, 2012 in Tax exempt | 3 comments
What is the difference between tax exempt and nonprofit? Are these just the same thing?
The terms “nonprofit” and “tax-exempt” are often used interchangeably. The interchangeable use of nonprofit and tax-exempt is incorrect.
The categorization of being a nonprofit is determined at the state level, while the determination of tax-exempt status is determined at the federal level. As a general rule most federally recognized tax-exempt organizations are nonprofit organizations (organizations organized at the state level as a nonprofit), however, simply organizing at the state level as a nonprofit does not automatically qualify an organization to be federally recognized as a tax-exempt organization. To qualify for federal tax-exempt status an organization must meet certain requirements set forth in the IRS code. The most common federally recognized tax-exempt status is 501c3 status.
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I’m part of a homeschool association. We would like to get tax exempt status because the books we buy cost so much and taxes add to it while public school students pays a flat fee to rent their books from their schools and never having to pay taxes. What is required for an organization such as our homeschool association to avoid having to pay for taxes on books we buy from the publishes which can cost up to the hundreds for just one textbook?
To clarify the type of tax you are paying. I believe from your description and question you are asking about the Sales and Use tax on the books you are purchasing. Sales and Use tax (commonly called “sales tax”) is a state level tax and varies from state to state. Because the sales tax is applied at the state level every state has its own laws governing when sales tax applies and when sales tax doesn’t apply. This can make the sales tax issue a little tricky.
1. Many states offer exemption from sales tax if you are recognized as a 501(c)(3) organization by the federal government. If you are already a 501(c)(3) organization you may apply (depending on your state) to be exempt from your state’s sales tax. The good news here is if you are granted exemption from your state’s sales tax the exemption will apply to other purchased items beyond just books.
2. Some states offer sales tax holidays (where no tax is charged) on back to school items. These sales tax holidays typically occur during August and September and last 2-3 days. These sales tax holidays vary from state to state from when they occur and what items are exempt during the tax holiday. Books may or may not be exempt in your state.
I hope this was helpful. If I miss categorized the tax that is being applied let me know.
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