Indiana changes sales tax obligations for nonprofits … again

Indiana changed several sales tax requirements for nonprofit organizations in 2022. It’s done it again this year with the enactment of Senate Enrolled Act (SEA) 417, which repeals and replaces some of the changes that went into effect in 2022.

To help you understand the varying Indiana sales tax requirements for nonprofits, we’ve created this Indiana sales tax FAQ for nonprofits.

Indiana sales tax FAQ for nonprofits

How is Indiana changing sales tax for Indiana nonprofits?

Starting July 1, 2023,* sales of tangible personal property by a qualified nonprofit organization are exempt from Indiana sales tax if the nonprofit makes the sale to carry on a nonprofit purpose and did not make more than $100,000 in sales in the current or previous calendar year.

Should a qualified nonprofit exceed the $100,000 sales threshold, it must start collecting Indiana sales tax and continue collecting Indiana sales tax for each calendar year until it makes less than $100,000 in sales for two consecutive years. Sales tax does not apply to sales made prior to meeting the threshold.

For example, if an organization exceeds the $100,000 threshold in August 2023, it would need to collect and remit sales tax for the remainder of 2023 and for all of 2024 and 2025. If that organization’s 2024 and 2025 sales are beneath the $100,000 threshold, it would no longer be required to collect and remit sales tax starting January 1, 2026. Unless Indiana changes its nonprofit sales tax laws again.

*The fine print. Although SEA 417 specifies that these provisions take effect July 1, 2023, Indiana Department of Revenue Sales Tax Information Bulletin #10 (2023) explains that “the intent of the Indiana General Assembly was that the provisions become effective immediately upon passage, which was on May 4, 2023, when Governor Holcomb signed SEA 417.” 

Does the $100,000 threshold apply to all Indiana nonprofits?

The $100,000 threshold does not apply to the following types of nonprofit organizations:

  • Places of worship (e.g., churches, mosques, synagogues)

  • Convents and monasteries

  • Parochial schools regularly maintained by a recognized religious denomination 

  • Indiana public schools

  • Youth organizations focused on agriculture

These five types of nonprofits are exempt from the requirement to collect and remit Indiana sales tax even if their annual sales in the state exceed $100,000.  

“Youth organizations focused on agriculture” joined the list of permanently exempt nonprofits when SEA 417 took effect (which was May 4, 2023, according to the Department of Revenue, though the bill provides an effective date of July 1, 2023).

The $100,000 threshold is also new as of July 1, 2023. There was a different threshold July 1, 2022, through June 30, 2023, and yet another threshold prior to July 1, 2022. Keep reading for details.

Do nonprofit organizations in Indiana need to register for Indiana sales tax?

All organizations required to collect Indiana sales tax must register with the Indiana Department of Revenue and obtain a Retail Merchant Certificate as well as a taxpayer identification number. However, not all nonprofit organizations in Indiana are required to collect Indiana sales tax.

Indiana nonprofits that make tax-exempt qualified purchases are also obligated to register with the department and obtain a taxpayer identification number. Per the department, a nonprofit should register for a sales tax exemption by filling out Form NP-20A. This can be done via INTIME, the department’s online e-services portal. 

Registration requirements for nonprofits as of July 1, 2023

Starting July 1, 2023, a qualified nonprofit that sells tangible personal property in the state is required to register as a retail merchant and collect and remit sales tax if the organization’s sales exceed $100,000 in 2022, 2023, or 2024. If its sales remain beneath that $100,000 threshold, the organization typically isn’t required to register as a retail merchant.

As noted above, the $100,000 threshold doesn’t apply to places of worship, convents and monasteries, religious parochial schools, public schools, and youth organizations focused on agriculture. These nonprofit organizations aren’t required to obtain a Retail Merchant Certificate or collect Indiana sales tax.

Registration requirements for nonprofits as of July 1, 2022

From July 1, 2022, through June 30, 2023, a qualified nonprofit was required to register for sales tax if it made $20,000 in taxable sales in the state in a calendar year. 

A nonprofit that registered for sales tax because its taxable sales exceed the $20,000 threshold prior to the effective date of SEA 417 isn’t required to remain registered if its 2022 or 2023 sales are under the new $100,000 threshold; they may close their account and cease collecting and remitting Indiana sales tax unless and until they meet the $100,000 annual threshold.

Furthermore, a qualified nonprofit is not required to register for sales tax to sell items intended primarily to 1) further the educational, cultural, or religious purposes of the organization, or 2) improve the work skills or professional qualifications of the organization’s members, provided the sales are not used in carrying out a private or proprietary business. In this case, no threshold applies.

Registration requirements for nonprofits prior to July 1, 2022

Prior to July 1, 2022, sales by a qualified Indiana nonprofit organization were exempt from Indiana sales tax if the nonprofit sold tangible personal property for a total of no more than 30 days in a calendar year, and the sales were for a fundraising activity to raise funds to further the qualified nonprofit purposes.

If such an organization sold tangible personal property for 31 or more days in a calendar year (not necessarily consecutive), it was considered a retail merchant and was required collect and remit sales tax on all sales made during the calendar year.

What nonprofit organizations qualify for Indiana nonprofit sales tax exemptions?

The following types of organizations qualify for Indiana’s nonprofit sales tax exemptions, provided no part of their income is used for the private benefit or gain of any associate, employee, member, shareholder, or trustee:

1. A fraternity, a sorority, or a student cooperative housing organization connected with and under the supervision of a postsecondary educational institution

 2. Any institution, trust, group, united fund, affiliated agency of a united fund, nonprofit corporation, cemetery association, or organization that is organized and operated exclusively for religious, charitable, scientific, literary, educational, or civic purposes  

3. A group, organization, or nonprofit corporation organized and operated for fraternal or social purposes, or as a business league or association  

4. A hospital licensed by the state Department of Health, a shared hospital services organization exempt from federal income taxation by Section 501(c)(3) or 501(e) of the Internal Revenue Code, a labor union, a church, a monastery, a convent, a school that is a part of the Indiana public school system, a parochial school regularly maintained by a recognized religious denomination, or a trust created for the purpose of paying pensions to members of a particular profession or business that created the trust for the purpose of paying pensions to each other, if the taxpayer is not organized or operated for private profit or gain

Can nonprofit organizations in Indiana make tax-free purchases?

Nonprofit organizations are not necessarily exempt from paying Indiana sales tax on their purchases. However, some nonprofits aren’t required to pay sales tax on certain transactions.

A sale is eligible for a sales tax exemption if:

  • The organization is a qualified nonprofit 

  • The qualified nonprofit registered with the Indiana Department of Revenue as a nonprofit organization no later than 120 days after its formation 

  • The item is purchased to “carry on the nonprofit’s purpose”

  • The transaction is invoiced directly to the nonprofit and paid directly by the organization’s funds 

Purchases made for the private benefit of any member of a qualified nonprofit organization, such as food or lodging, don’t qualify for the sales tax exemption. 

For example, if a nonprofit organization hosts a three-day convention for members, rooms rented to conduct the meetings would likely be exempt from sales tax and applicable local lodging taxes. But food served at the event would be subject to sales tax, and applicable taxes would apply to hotel rooms reserved for the organization’s officers, even if the nonprofit pays for the food and lodging. 

Additionally, nonprofits that are classified as “social” organizations by the Internal Revenue Service are not allowed to make tax-free purchases in Indiana. An entity is considered a social organization if more than 50% of its expenditures are related to social activities.

Do out-of-state nonprofits qualify for an Indiana sales tax exemption?

As of July 1, 2022, nonprofits that are in Indiana temporarily (e.g., to attend a short-term event) may request a temporary exemption certificate by completing Form NP-20T.  

A nonprofit organization that’s located in another state and isn’t registered with the Indiana Department of Revenue may also use a Streamlined Sales Tax Governing Board Form F0003 to make purchases exempt from the sales tax. If you’re unfamiliar with Streamlined Sales Tax, read What is Streamlined Sales Tax, and why should you care?  

What kind of exemption certificate should Indiana nonprofits use?

Effective January 1, 2023, nonprofits are required to use the Nonprofit Sales Tax Exemption Certificate (Form NP-1). Nonprofit organizations should no longer use the Indiana General Sales Tax Exemption Certificate (Form ST-105).

How do nonprofits obtain an Indiana exemption certificate?

Indiana nonprofit organizations need to register through the Indiana Department of Revenue INTIME portal to create and access exemption certificates. 

When do nonprofit organizations need to file their annual report with the Department of Revenue?

Nonprofits were required to file annual returns through tax year 2022. For tax years after 2022, nonprofit organizations must file a report every five years, using the new Form NP-20R, Nonprofit Organization’s Report.

The first due date varies depending on the last two digits of a nonprofit’s federal employer identification number (FEIN), as follows:

  • May 15, 2024, and every five years after that: Organizations with no FEIN and organizations with FEINs ending in 00 through 24

  • May 15, 2025, and every five years after that: Organizations with FEINs ending in 25 through 49 

  • May 15, 2026, and every five years after that: Organizations with FEINs ending in 50 through 74

  • May 15, 2027, and every five years after that: Organizations with FEINs ending in 75 through 99

 

Keeping track of changing sales tax requirements can be extremely challenging for all businesses, including nonprofit organizations. Learn why automating sales tax calculation, collection, and reporting can help. 

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