Dear Nonprofiteer, Are we still tax exempt? In what state?

Dear Nonprofiteer,

During the 1980’s, our university located in Washington, DC, instructed its alumni affiliates to seek their individual tax exempt status. Our PA affiliate did so. Yet, around 2001, the university instructed all affiliates to get rid of individual tax exempt statuses and assume its.

At that time, our affiliate leadership asked the university’s legal department to reduce to writing an assurance that our affiliate would enjoy PA tax benefits using the university’s tax-exemption ONLY. To date, we have received no answer.

The issue emerged again. Our question is will our university’s DC-based federal tax-exempt status allow our PA-based affiliate to enjoy tax-exempt status in PA?

I look forward to your response.

Signed, No Good Deed Goes Unpunished

Dear Good Deed:

The Nonprofiteer thinks there may be some confusion here in the use of the term “tax exempt.” Under Federal law, section 501(c)(3) of the Internal Revenue Code provides that qualified exempt organizations need not pay taxes on their income AND may receive contributions which are tax-deductible by the people who make them. As part of the university, your alumni affiliate is “tax exempt” in this sense.

State tax exemption is a different matter. Many states waive sales taxes for organizations which are exempt under 501(c)(3), though this ordinarily requires a separate application to the state’s Attorney General or Secretary of State. Likewise, most states exempt 501(c)(3) organizations from property taxes, though some require proof that the organization is indeed “charitable,” that is, provides a certain amount of charity care (in the case of hospitals) or a certain amount of scholarship money (in the case of schools).

I’m not familiar with the Pennsylvania rules, but the point is that they ARE Pennsylvania rules. If, as a part of the university (which is what you now are, having given up your independent tax exemption), you are entitled to relief from state sales and property taxes, it’s because the state says so–not because you do, or do not, have your own Federal tax exemption.

So Google “state sales tax exemption Pennsylvania” and “property tax exemption Pennsylvania” and see what forms have to be filled out to enable you to skip paying property taxes and/or taxes on your purchases of paper clips and reams of copy paper.

BUT note whether those forms can be filled out by you, as a subsidiary of the university, or whether they have to be filled out by the university’s general counsel. If the latter, a simple phone call to him/her coupled with emailing him/her the scanned forms should free you from all tax burdens.

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    Nonprofiteer

    The Nonprofiteer is Kelly Kleiman, principal of NFP Consulting, which provides Board development, strategic planning and fund-raising services to charities and philanthropies. Through her consulting practice and in her guise as The Nonprofiteer, Kelly has spent the past 25-plus years helping small and mid-sized nonprofits organize themselves better and raise more money. These days she focuses especially on helping them use high-skill volunteers. Kelly is also a lawyer and freelance journalist whose reportage and essays have appeared in the New York Times, Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; in the alternative press; on websites including the Huffington Post; and on the radio, including the BBC and WBEZ Chicago Public Radio. She and her fellow "Dueling Critic" Jonathan Abarbanel present a weekly podcast of their reviews of Chicago theater at DuelingCritics.net. Earlier in her career she was dean of admissions of IIT Chicago-Kent College of Law and Executive Director of the Chicago Children’s Choir, and practiced real estate and zoning law with the firm of Rudnick & Wolfe. Kelly holds undergraduate and law degrees from the University of Chicago. She was a founding Board member of the Association of Consultants to Nonprofits and also served for 5 years on the Board of the Association for Women Journalists–Chicago. She can be reached ("Dear Nonprofiteer . . .") at KellyNFP@yahoo.com.

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