Nonprofit and NC Sales and Use Tax Clarifications
Recently, I overheard a board member of a North Carolina nonprofit state they did not have to charge sales tax because they are exempt. Nonprofit auditors will tell you, this is simply not true. Just because an organization is not-for-profit does not exempt them from paying or collecting sales and use tax. North Carolina law provides for no such exemption.
Nonprofit organizations are required by North Carolina law to pay sales tax for items they purchase to use in the organization. The only time they may be exempt from paying sales tax is when they are buying goods for resale. Once sold, however, they are required to collect and remit the sales tax to the NC Department of Revenue. To obtain this exemption the organization must have a properly executed Streamlined Sales Tax Agreement Certificate of Exemption (Form E595E). Penalties of $250 per occurrence can be imposed for issuance of a Streamlined Sales Tax Agreement Certificate of Exemption on purchases that are for use or consumption by the organization and not for resale.
Items sold by the nonprofit are subject to sales tax. The only time the organization does not have to collect the sales tax is when they have been supplied the aforementioned form E595E by their customer or if specifically exempt by North Carolina statutes, (G.S. 105164.13).
Some nonprofits are eligible to apply for refunds of sales and use tax paid on purchases used to carry out their stated mission. The refunds are applied for in October for purchases between January 1 to June 30, and in April for purchases July 1 to December 31 by filing form E585. Eligible nonprofits are defined by G.S 105164.14(b). The organization can submit a copy of its Articles of Incorporation and its Bylaws or its Bylaws, Constitution, or other organizational documents If not incorporated to receive a determination as to whether the organization qualifies for tax refunds.
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