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Is your non-profit eligible for tax exemption?

On Behalf of | Nov 7, 2016 | IRS Issues

Whenever a consumer buys a product or brings in revenue, they are required to pay taxes set by the federal and state government. As non-profit organizations don’t make a profit, they can gain a tax exempt status that allows them to avoid paying certain taxes on certain things. While some non-profits are eligible for tax exempt status, others are not, and it can be difficult to know the difference.

The state of Georgia rarely gives use or sales tax exemptions to charitable, civic, religious church or other non-profit organizations. They are required to comply with the law and pay taxes of any purchases of personal property. Non-profits can still apply for relief from federal taxes by filing a 501(c)(3) application with the IRS.

What is tax exempt status?

If an organization is tax exempt with the IRS, it is not required to pay certain federal taxes. In order to avoid state taxes, an organization must also file with the state it is operating in. Tax exempt status allows the organization to use money that would be paid to taxes to keep the corporation afloat or reach its individual goals set to help others.

Exceptions for state tax exemptions

The state of Georgia does make some exceptions for non-profit agencies that meet any of the following requirements:

  • Private schools
  • Adoption agencies and licensed orphanages
  • In-patient hospitals and mental hospitals
  • Maternity homes and nursing homes
  • Blood banks
  • Groups that provide assistance to the disabled

In order to get an exemption from the state, your non-profit must first file with the IRS and receive a Letter of Determination regarding your 501(c)(3) status. This form and a certificate of incorporation from the state should be sent to the State of Georgia along with the initial organization tax return.

How to stay exempt

Those with tax exempt status must keep detailed records of anything financial or donation related. These organizations must stay removed from all political activity, pay close attention to restrictions on lobbying activities, use written receipts for donations and file an annual information return with the federal government. Taxes must be paid on any unrelated business income. Organizations can have their tax exempt status revoked and reinstated, so staying up to date on regulations is very important. Those who fail to file for three years in a row have their tax exempt status automatically revoked with the IRS.

The laws and statutes mandating tax exemption can be confusing and frustrating for an organization that is trying to help groups of people. An attorney may be able to help answer any questions regarding tax exemption status at the state or federal level.