Are Nonprofits Exempt from Arizona Sales Tax?

One of the appeals of establishing a nonprofit organization is that these organizations are generally exempt from paying one or more types of tax. But just because an entity is exempt from one type of tax does not mean it is exempt from all taxes. In my work with Arizona nonprofit organizations, one common question I’m asked is whether nonprofits are exempt from Arizona sales tax (transaction privilege tax)

To the surprise of many, the answer is no. Arizona tax law does not provide an overall sales and/or use tax exemption for nonprofit organizations. Therefore, sellers making sales to churches, schools, and other nonprofits should be collecting sales tax from the organization at the time of sale, unless the purchaser provides a valid Arizona certificate of exemption.

Tax law is nothing if not complicated, so there are, of course, some exceptions to this general rule. Purchasers who believe they qualify for any of these exceptions must present either a letter of exemption from Arizona Department of Revenue or a valid exemption certificate (most commonly Form 5000) at the time of sale.

Here are a few transactions with nonprofit organizations that are not subject to Arizona sales tax:

• Tangible property sold to qualifying hospitals.
• Tangible property sold to organizations that regularly serve free meals to the needy on a continuing basis.
• Tangible property sold to a charitable organization that uses such property in training, job placement, or rehabilitation programs for intellectually or physically disabled persons.
• Tangible property sold to a charitable organization for the purposes of resale. In this case, the purchaser must provide a valid Form5000A.

Arizona does allow an exemption for charitable organizations that collect donations and then sell these donations at retail. Such organizations do not need to collect state sales tax on their sales; this applies to sales by the organization, not to purchases it makes. For example, thrift stores run by public charities do not have to collect sales tax when they sell their inventory.

Sales tax, as it relates to nonprofit organizations, can be a surprisingly complicated topic. If you have any questions or would like additional information, please contact one of our professionals who specialize in nonprofits. We have a great deal of knowledge and expertise and are happy to share it with you.