New York nonprofit organizations must navigate the complicated sales tax world, state by state, whether acting as a purchaser or seller of goods.
Purchases:
Despite having a tax-exempt status, not all purchases made by a nonprofit organization are exempt. Items like office supplies, furniture, and things generally not central to the mission of the charitable activities of the organization may not qualify for a sales tax exemption, even for nonprofits with 501(c)(3) status.
Purchases directly related to an organization’s charitable work are generally exempt from state sales tax. This may include medical supplies for free clinics and hospitals, food for soup kitchens, and educational materials for schools. Organizations should maintain records of exempt purchases with documentation. This includes the receipt of the transaction, the exemption certificate used, and the purpose of the purchase.
Nonprofit organizations in New York with a valid 501(c)(3) designation from the IRS and a sales tax exemption certificate issued by the New York Department of Taxation and Finance are exempt from paying sales tax on certain purchases related to their charitable activities. This applies to purchases made from New York vendors and those in states, like Colorado, that accept out-of-state exemption certificates. Some states, like Pennsylvania and Virginia, do not recognize out-of-state sales tax exemption certificates.
Sales:
The 2018 Supreme Court decision in South Dakota v. Wayfair shifted the sales tax landscape to meet the reality of our modern e-commerce economy. Prior to the decision, retailers were not obligated to collect and remit sales tax to states in which they did not have a physical presence. It was estimated that states were losing between $8 to $33 billion a year in sales tax revenue. Since South Dakota v. Wayfair, states that charge sales tax have updated their economic nexus laws to specify the responsibilities of remote retailers. Put simply, economic nexus laws require sellers to collect and remit sales tax in states where the seller has met the state’s monetary or transactional threshold, even if they do not have a physical presence in that state.
New York’s economic nexus rules require sellers without a physical presence in the state to register as a New York State vendor if they surpass the threshold of $500,000 in sales and more than 100 transactions within the state. They are then responsible for collecting and remitting sales tax on any qualifying sales. Retailers based out of New York are responsible for monitoring the economic nexus laws of other states in which they conduct business in order to be compliant in the collection and remittance of sales tax in those states.
Considering whether a state’s economic nexus threshold has been met is the first step in determining a nonprofit’s sales tax exposure. Even if an exempt organization’s sales qualify for an exemption, meeting the economic nexus threshold could require additional compliance measures. New York nonprofits that meet the economic nexus threshold of another state in the course of remote sales to that state must ensure their compliance with the state’s regulations.
Nonprofit organizations that obtain the proper tax-exempt status, understand which purchases qualify for exemption, and maintain good record-keeping practices, can ensure they are adhering to New York state regulations as well as maximizing their tax benefits.
Keep in mind, these are general guidelines. If you have any doubts about a complex specific situation or concerns about your organization’s operations, consider consulting with a professional who specializes in nonprofits and tax law.