By Cory Schunemann, CPA, Manager at Blue & Co.
Indiana’s 2023 Senate Enrolled Act (SEA) 417 made another change to the sales tax collection requirements for not-for-profits after 2022’s SEA 382. Not-for-profits with taxable retail sales in excess of $100,000 in the current or prior year are now required to collect and remit sales tax.
The sales tax collection and filing requirement will apply until there are two consecutive years of sales below the $100,000 threshold.
This change went into effect immediately upon passage (May 4, 2023), and increased the threshold applicable to not-for-profits from $20,000 to $100,000.
Not-for-profits must register and collect sales tax if sales exceed $100,000 during the 2022, 2023, or 2024 calendar year.
Neither the not-for-profit nor its customers owe sales tax on sales made prior to meeting the threshold.
The not-for-profit must register and begin collecting sales tax after taxable sales exceed $100,000.
Example: An organization sells $110,000 of tangible personal property during a festival in May 2023. The organization is not required to “flip the switch” in the middle of the festival, but it must register and collect sales tax after the festival is over. Sales tax must be collected and remitted for the remainder of 2023 and all of 2024 and 2025.
Frequently Asked Questions
Are there any exemptions from this new rule?
Certain types of not-for-profits are exempt from collecting sales tax, regardless of the amount or purpose of the sales, such as:
- Churches and other places of worship,
- Monasteries and convents,
- Indiana public schools,
- Parochial schools regularly maintained and recognized by a religious denomination,
- Youth organizations focused on agriculture.
Certain sales by not-for-profits are exempt from sales tax regardless of the amount. These sales must be primarily intended to:
- Further the educational, cultural, or religious purpose of the organization; or
- Improve the work skills or professional qualifications of the organization’s members, but are not used to carry out private business.
The $100,000 threshold does not apply to these sales, and these items may be sold as exempt throughout the year.
An example of this type of exempt sale is the sale of books and similar items by friends of libraries organizations that had been donated to the organization or the library.
What happens if the organization registered and began collecting sales taxes in 2022 because its sales exceeded the prior threshold of $20,000 but they didn’t surpass $100,000?
The organization would not have an obligation to collect and remit sales tax for 2023. The organization can close its sales tax account, and it would not be required to re-register and collect sales tax until its sales exceed $100,000 during the year.
The organization’s sales will be more than $100,000 for 2023 only, and they will be less than this for 2024 and 2025. When can the organization stop collecting and filing sales taxes?
2026 is the first calendar year the organization will not be required to collect and remit sales taxes, and the organization can close its sales tax account.
Once two consecutive years of sales are below $100,000, the organization is no longer considered a retail merchant and is exempt from the requirement to collect and remit sales taxes.
How does an organization register and file sales tax returns?
Not-for-profits should use the Indiana Department of Revenue’s INTIME e-services portal.
Do not-for-profits pay sales tax on their own purchases?
Purchases by a qualified nonprofit are exempt from sales tax if:
- The organization holds a sales tax exemption certificate,
- The item purchased will be used to carry on the non-profit’s purpose, and
- It is invoiced to, and paid for, directly by the entity.
To avoid paying sales tax on these purchases, organization must request a sales tax exemption certificate (Form NP-1) for each vendor through INTIME.
Social organizations, including homeowner’s associations, are not qualified organizations for sales and use tax purchase exemptions.
For examples of how this change impacts not-for-profits, see the Indiana DOR Sales Tax Information Bulletin #10.
If you have any questions about how the new law impacts your organization, please reach out to your Blue & Co advisor.