State Reports and Registrations
While IRS tax-exempt status provides an
exemption from federal taxes, it does not cover state taxes. Most states
require additional applications to exempt the organization from state income
and sales taxes.
In some states, corporate income tax is
automatically exempt when the IRS determines tax-exempt status. However, there
are many states where that is not the case. Additionally, almost every state
requires an application for sales tax exemption. Sales tax exemptions remove
sales tax from purchases made by the organization. In addition to the initial
filing, most states require additional annual compliance documents. These vary
by state but typically include:
•
Annual reports
•
Tax returns and exemption renewals
•
Charity registration and renewals
•
Gaming registrations
•
Local registrations
When an organization operates in multiple
states, it must adhere to the reporting requirements for every state it holds a foreign
registration. That means each state a nonprofit
organization works in multiplies the number of state and local
compliance documents.
Similar to the IRS, states issue penalties
for failing to file state compliance documents. These can range from fines to
revocation of the entire organization. The compliance specialists at
BryteBridge are ready to answer questions about your organization’s state
compliance requirements.
Penalties For Not Filing
Failure to file an Annual Report or state tax
return when they are due may lead to an automatic dissolution of the
organization. Once dissolved, the nonprofit is no longer a legal corporation in
the state. Reinstatement often brings hefty
fees, in addition
to filing past-due
Annual Reports. One BryteBridge client
faced $1,277.50 in reinstatement
state fines after Illinois administratively dissolved their organization!
Types of State Reports and Registrations
Just as there are 50 states in the union,
there are many different reporting requirements for a nonprofit organization.
Below, we cover the most common reports. However, it is best to check with a
BryteBridge specialist to prepare and ensure the specific requirements for your
organization.
•
Annual
Reports
An Annual Report is a document letting the state know
your entity is still active. It also updates state records with a change in address, phone
number, or, in some states,
board members. Typically, nonprofits file Annual
Reports with the Secretary of State. While we refer to this document as an Annual Report (as so named in most states),
some states do not require yearly reporting.
For example, Ohio only requires nonprofits to report every five years. The due date for an organization’s Annual
Report depends on the state
of incorporation. In some states,
initial annual reports are due within
60 days of incorporation. Refer
to the included chart for more information.
•
Tax Returns and Exemption Renewals
Like
filing a 990 tax return with the IRS, many states require nonprofit
organizations to file state tax returns every year. This requirement exists
even though the organization is not paying corporate taxes.
Additionally, the organization may need to file annual
renewals for state
tax-exempt status, depending on the state. Unlike Annual Reports, most states
are far less likely to require renewing sales tax and exemption documents.
Refer to the included chart for more information.
•
Charity
Registration
Renewal
Charity
Registrations are required to ask people and companies for donations in the
state of operation. For more information about charity registrations, please
refer to the previous chapter.
•
Gaming
Registration
Many
states require additional registration and renewals for gambling or bingo
activities. These special licenses are in addition to all other reporting requirements. For more information about gaming licenses, refer back to the section on UBIT reporting or contact a BryteBridge specialist.
•
State and Local Licenses
In
addition to state registrations outlined in this chapter, some nonprofit
organizations may need to apply for additional state licenses depending on
their purpose and operation.
For example,
a homeless shelter may need to apply for state and local licenses to operate a
residential facility. Sometimes these licenses grant permission for general
operation, and others specify the maximum number of residents permitted. As
another example, an organization providing legal aid may need authorization
from the state bar governing lawyers.
Nonprofit organizations are not exempt from state license requirements. BryteBridge specialists can assist in determining the license requirements for your organization.
•
Foreign
Registrations
When an organization operates in multiple
states, it must adhere to the reporting requirements for every state it holds
a foreign registration. For more information about foreign registrations, refer back to the previous
chapter or contact a BryteBridge specialist.
•
Local
Registrations
In addition
to state documentation, all county and municipal governments require a business
license or occupancy permit. These permits pay any
local taxes or fees and allow the business to operate in the local
municipality.
These
licenses or permits are typically assigned based on the organization’s address
and depend on the type of service. The filing and fees process varies widely
depending on the municipality, so it is essential to follow local rules.
Nonprofits
using a board member’s home address must verify that the local government
permits businesses in the residential
neighborhood. Some cities or homeowners associations may have deed restrictions
preventing home businesses.
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