The Top 3 Implications of Indiana’s New Not-for-Profit Sales Tax Law

Effective July 1, 2022, significant changes are coming to the way not-for-profit organizations are able to purchase and sell taxable items exempt from sales tax. Though there are still many questions about how to apply the new rules, here are the top three implications for not-for-profits:

1. Applying for sales tax exemption: Within 120 days of formation, a not-for-profit shall apply for a sales tax exemption from the Indiana Department of Revenue. Once approved, the department will issue an official electronic sales tax exemption form that the not-for-profit can use to purchase exempt items from vendors. Vendors will have more security in accepting an official department-issued exemption certificate from the not-for-profit organizations.
2. Reporting every five years: In exchange for the department-issued exemption certificate, the not-for-profit will be required to file a report with the department every five years. If the not-for-profit fails to file the report after being notified by the department, it will risk losing its sales tax-exempt status and may not be able to regain it until it goes through the department’s ordinary appeal process. Changes also include a schedule by which existing not-for-profit organizations are required to file their first and second reports depending on its federal employer identification number.
3. Collecting and remitting sales tax: Prior to July 1, 2022, sales by a not-for-profit may be exempt if the not-for-profit is engaged in selling activity in 30 days or fewer in a calendar year. Effective July 1, 2022, sales of taxable items by a not-for-profit are exempt if the organization does not make more than $20,000 dollars in sales in a single calendar year. Once a not-for-profit’s sales reach $20,000, it is required to begin collecting and remitting sales tax for its sales for the remaining part of the calendar year. This change may not affect organizations with large fundraising goals or functions, but it will benefit smaller not-for-profits whose total sales do not hit the $20,000 limit.

What Do I Do Now?

This new sales tax law was only recently passed, and we expect that the Indiana Department of Revenue will release additional guidance. We will provide updates as more information becomes available. If you have questions, contact your KSM advisor or complete this form.