Companies who qualify as exempt according to the IRS cannot assume that their exemption qualifies them for exemption from sales tax at the state level. In the state of Illinois, “…organizations must obtain an exemption identification number (an “E” number) to qualify” for state sales tax exemption. Once an application is given to the state, the state must determine if the organization is exclusively religious, educational or charitable in order to qualify it for exemption from sales tax on purchases of “tangible personal property in furtherance of their organizational purposes.”
Without an E number, all purchases will be considered subject to tax. Companies dealing with 501(c)(3) organizations should strive to be aware of their state requirements and ensure they have obtained the proper documentation to prove the exempt organization is also entitled to purchases exempt from sales tax. Additional caveats in the laws may include:
- All purchases must be made with funds from the organization to not be charged sales tax.
- Sales to organizations holding the E number are exempt, but not sales to individual members of the organization.
The burden, according to the state, lies with the seller and sales tax returns are monitored closely to ensure compliance. Any disparity between receipts and tax-exempt status or application of tax-exempt status can flag a company for a compliance audit.
To learn more about your state’s specific requirements, you can research their codes on nontaxable transactions, sales to nonprofits and other related codes.
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