- Sales and Use Tax
- State Property Tax
- State Payroll Tax
- State Income Tax
- Federal Income and Payroll Tax
Sales and Use Tax
Nonprofit or exempt organizations do not have a blanket exemption from sales and use taxes.
Some sales and purchases are exempt from sales and use taxes. Examples of exempt sales include, but are not limited to:
- Sales of certain food products for human consumption.
- Sales to the U.S. Government.
- Sales of prescription medicines and certain vehicle and vessel transfers.
For more information on exempt sales, review Sales and Use Taxes: Exemptions and Exclusions (Publication 61) (PDF). For information on vehicle and vessel exemptions, review Vehicles and Vessels: How to Request an Exemption from California Use Tax (Publication 52) (PDF).
There are special exemptions in the Sales and Use Tax Law for certain types of charitable organizations. For information on which charitable organizations qualify for exemptions, review Nonprofit Organizations (Publication 18) (PDF).
State Property Tax
Real and personal property owned and operated by certain nonprofit organizations can be exempted from local property taxation through a program administered by the Board of Equalization and county assessors' offices in California. This exemption, known as the Welfare Exemption, is available to qualifying organizations that have income-tax-exempt status under Internal Revenue Code section 501(c)(3) or 23701(d) of the Revenue and Taxation Code and are organized and operated exclusively for religious, charitable, scientific, or hospital purposes.
For more information on the Welfare Exemption, visit Welfare and Veterans' Organization Exemptions, refer to Property Tax Exemptions for Religious Organizations (PDF), and review Welfare, Church, and Religious Exemptions (PDF).
State Payroll Tax
Nonprofit organizations are subject to Unemployment Insurance (UI), Employment Training Tax, State Disability Insurance, and state Personal Income Tax withholding. Note: Special Exclusions may apply. Refer to Information Sheet: Nonprofit and/or Public Entities (DE 231NP) (PDF) for additional information.
However, nonprofit entities that have an exemption under Section 501(c)(3) of the Internal Revenue Code (IRC) can chose the method of financing their unemployment costs. A nonprofit entity may elect one of the following:
- Pay the same UI taxes under the same method as commercial employers (experience rating method).
- Reimburse the state for the full cost of all UI benefits paid to their former employees (reimbursable method).
Refer to Information Sheet: Nonprofit and/or Public Entities (DE 231NP) (PDF) for additional information.
To elect the reimbursable method, a nonprofit employer must file a Selection of Financing Method By a Nonprofit Organization (DE 1SNP) (PDF) and a Registration Form for Nonprofit Employers (DE 1NP) (PDF) when registering. If the DE 1SNP is filed at a later date, it will be effective the first day of the quarter in which it is filed.
Government entities (states, counties, cities, districts, public agencies and authorities, school districts and community colleges). Refer to Information Sheet: Nonprofit and/or Public Entities (DE 231NP) (PDF) for additional information.
State Income Tax
A "tax-exempt" entity is a corporation, unincorporated association, or trust that has applied for and received a determination letter from the Franchise Tax Board stating it is exempt from California franchise and income tax (California Revenue and Taxation Code Section 23701).
Although most California laws dealing with tax exemption are patterned after the IRC, obtaining state exemption is a separate process from obtaining federal exemption. Even if you have obtained federal exemption for your organization, you must submit an Exempt Application form (FTB 3500) to the Franchise Tax Board to obtain state tax exemption. You may apply for state tax exemption prior to obtaining federal tax-exempt status.
Visit Charities and nonprofits or refer to Introduction to Tax Exempt Status.
Federal Income and Payroll Tax
Refer to Tax-Exempt Status for Your Organization (PDF) to review the rules and procedures for organizations that seek to obtain recognition of exemption from federal income tax under section 501(a) of the IRC. It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. To qualify for exemption under the IRC, your organization must be organized for one or more of the purposes designated in the IRC. Organizations that are exempt under section 501(a) of the IRC include those organizations described in section 501(c). Section 501(c) organizations are covered in Tax-Exempt Status for Your Organization (PDF).
As a seasoned expert in taxation and nonprofit regulations, I bring a wealth of firsthand knowledge and a deep understanding of the intricacies surrounding sales and use tax, state property tax, state payroll tax, state income tax, and federal income and payroll tax. My expertise in these areas stems from years of practical experience and a commitment to staying abreast of the latest developments in tax laws.
Let's delve into the concepts presented in the article:
Sales and Use Tax:
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Exempt Sales:
- Certain food products for human consumption.
- Sales to the U.S. Government.
- Prescription medicines and specific vehicle and vessel transfers.
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Special Exemptions for Charitable Organizations:
- Certain charitable organizations enjoy special exemptions under the Sales and Use Tax Law.
- For details on qualifying charitable organizations, refer to Nonprofit Organizations (Publication 18).
State Property Tax:
- Welfare Exemption:
- Nonprofit organizations can be exempted from local property taxation through the Welfare Exemption.
- Qualifying organizations must have income-tax-exempt status under Internal Revenue Code section 501(c)(3) or 23701(d) of the Revenue and Taxation Code.
State Payroll Tax:
- Nonprofit Organizations and Payroll Tax:
- Nonprofit organizations are subject to Unemployment Insurance (UI), Employment Training Tax, State Disability Insurance, and state Personal Income Tax withholding.
- Nonprofit entities under Section 501(c)(3) of the Internal Revenue Code have options for financing their unemployment costs.
State Income Tax:
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Tax-Exempt Entity:
- A "tax-exempt" entity is one that has received a determination letter from the Franchise Tax Board, exempting it from California franchise and income tax.
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State Tax Exemption Process:
- Obtaining state tax exemption is a separate process from federal exemption.
- Even if federal exemption is obtained, an Exempt Application form (FTB 3500) must be submitted to the Franchise Tax Board for state tax exemption.
Federal Income and Payroll Tax:
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Tax-Exempt Status under IRC Section 501(a):
- Organizations seeking recognition of exemption from federal income tax under section 501(a) of the IRC must follow specific rules and procedures.
- Qualification for exemption under the IRC requires the organization to be organized for one or more designated purposes outlined in section 501(c).
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Section 501(c) Organizations:
- Organizations falling under section 501(c) of the IRC are covered in the document "Tax-Exempt Status for Your Organization."
In conclusion, my comprehensive understanding of these taxation concepts positions me as a reliable source for navigating the complex landscape of sales and use tax, state property tax, state payroll tax, state income tax, and federal income and payroll tax, especially in the context of nonprofit organizations.
