Determining Sales Tax Exempt Organizations

How do you determine what organizations are sales tax exempt? Some tax exempt organizations are more difficult than others to identify. For example, do churches pay taxes the same as other 501(c)(3)s? According to an article, here are some tax exempt status organizations.

  1. Federal Government: "States are prohibited from taxing direct sales to the Federal Government under the principal of federal sovereignty and the supremacy clause of the U.S. Constitution."
  2. State and local government: "Unlike the exemption for the Federal Government, which applies to all states, the exemption for state and local governments is purely a product of the legislative process and of legislative grace. States are free to provide exemptions without question of discrimination against other non-governmental agencies."
  3. Non-profit and charitable organizations: "Most states require an application by the organization for the exemption to apply. Additionally, a separate exemption number or letter may be issued for the sales tax exemption. The federal exemption letter will generally not be considered substantiation for the state sales tax exemption. For most states that grant an exemption to non-profit organizations, the exemption is for their purchases of items used in conducting their exempt activities. Examples of potentially exempt organizations are schools, churches, non-profit hospitals, and charitable organizations. If they make sales, these may be taxable – particularly if the sale is to the general public or if the sales compete with for-profit sellers."

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