Risks to Tax-Exempt Non-Profits
I. Myth: Tax-Exempt Non-Profits Have NC Sales Tax Exemption
In North Carolina, nonprofits (501(c)(3) Tax-Exempt Organizations) are not exempt from paying NC sales taxes in most cases. But, a nonprofit can do things to make sure they do not have to pay NC sales taxes.
This may sound like the same thing, but it means there is a little work that a nonprofit has to do to make sure they have the so-called “sales tax exemption.”
1) Collecting and Paying Sales Tax on Items Sold
a) Tax-exempt organization in North Carolina are NOT required to charge sales tax on items so long as following conditions are met:
i. Sales of food, prepared food, soft drinks, candy, and other tangible personal property not for profit for or at an event that is sponsored by an elementary or secondary school when the net proceeds of the sales will be given or contributed to the school or to a nonprofit charitable organization, one of whose purposes is to serve as a conduit through which the net proceeds will flow to the school.
ii. Sales by a nonprofit civic, charitable, educational, scientific, literary, or fraternal organization, with the exception of gross receipts derived from an admission charge to an entertainment activity, when all of the following conditions are met:
- a. The sales are conducted only upon an annual basis for the purpose of raising funds for the organization’s activities.
- b. The proceeds of the sale are actually used for the organization’s activities.
- c. The products sold are delivered to the purchaser within 60 days after the first solicitation of any sale made during the organization’s annual sales period.
iii. Admission charges are exempt from sales tax if they meet certain requirements. You can contact the North Carolina PTOs & Boosters Club Association for more information.
b) If a booster club, PTO or other tax-exempt non-profit makes taxable retail sales, it must register by using the Online Business Registration Portal or submitting a Department Form NC-BR to the NC Department of Revenue.
2) Sales Tax Exemption on Items Purchased for Resale
a) As a tax-exempt organization in North Carolina, a nonprofit corporation can issue Form E-595E, “Streamlined Sales and Use Tax Agreement Certificate of Exemption” to a NC vendor for items that are purchased to resale in a fundraiser.
b) By issuing the report to the vendor, a tax-exempt nonprofit corporation will not have to pay sales taxes on items purchased for resale. Note, the vendor must be a NC vendor. It’s possible to use this for online vendors too. You can contact the North Carolina PTOs & Boosters Club Association for more information.
3) Purchases by Tax-Exempt Organization in North Carolina
a) NC tax-exempt nonprofit corporations have to pay sales and use tax paid in NC on direct purchases of items and services for use in carrying on their nonprofit work. Sales and use tax liability indirectly incurred by a tax-exempt nonprofit corporation entity through reimbursement to an authorized person of the entity for the purchase of tangible personal property and services for use in carrying on the work of the tax-exempt nonprofit corporation entity is considered a direct purchase by the tax-exempt nonprofit corporation.
b) However, a tax-exempt organization in North Carolina can apply for a refund every six months.
c) A claim for refund of sales and use tax paid by a nonprofit entity on qualifying purchases is to be filed on Form E-585, Nonprofit and Governmental Entity Claim for Refund State, County, and Transit Sales and Use Taxes.
The North Carolina PTOs & Boosters Club Association can file for a Certificate of Registration from the state of NC for your non-profit and help your organization through the complicated sales and use tax issues.
II. Common Risks to Tax-Exempt Nonprofit Corporation
Tax-exempt organizations in North Carolina face a lot of similar dangers concerning for-profit businesses. However, the urge to respect contributors’ commitments of time and cash makes those dangers significantly harder to endure. Monetary unsteadiness, harmed reputation, and directors and officers obligations are only the top worries for a tax-exempt nonprofit corporation.
1) Theft
Theft of funds (or assets) can be executed by a volunteeer, an outsider merchant, or even a member of the non-profit corporation. As indicated by the “Report to the Nations on Occupational Fraud and Abuse, 2014 Global Fraud Study,” by the Association of Certified Fraud Examiners, the not-profit organization make up more than 10% of fraud submitted.
2) Fundraising Fraud
False groups might simulate a Tax-exempt organization to have to fundraiser events, saving the benefits for themselves. On the off chance that the fraud is found, the organization can lose donor’s trust and could be expected to take responsibility for the misfortunes caused by the individuals who donated fake fundraisers.
3) Reputation
Considering that nonprofits’ activities are based on the generosity of others, they depend on a positive public insight and the assurance of their donor base.
Losing those would make it impossible for a Tax-exempt organization to get grants and charitable donations. It needs to convey the services it guarantees and could drive away donors who would prefer not to support an organization that has collected negative press.
4) Regulatory Compliance
To keep their tax-exempt status, nonprofits are dependent upon specific determinations set by the IRS. For example, nonprofits should exhibit that they utilize assets for a charitable reason, not monetary or political gain. The IRS forbids any political action past speaking with lawmakers as a constituent or reacting to government requests.
5) Directors & Officers Responsibilities
A board’s directors and officers are responsible for keeping a nonprofit’s vision and long-term strategy. That incorporates managing funds, so the organization can keep the “lights on” while guaranteeing that most of the donor’s dollar goes to a worthy mission.
6) Volunteer Staff
NC tax-exempt nonprofit corporations will generally adopt a more straightforward plan to screen and prepare volunteers versus paid workers. Thus, figuring it pointless to question the expectation or abilities of individuals who will give their time. Be that as it may, if a volunteer causes injury or harm or even takes from an organization, the nonprofit can confront cases of carelessness. And the expense to guard or settle those cases is frequently more costly than the injury or harm themselves.