Pennsylvania law provides nonprofit organizations with an exemption from sales tax in some situations, but not all. Assuming a nonprofit organization meets the state's requirements for an exemption, the organization will not have to pay sales tax on items its purchases for use in carrying out its charitable purpose. However, items purchased for any other use are subject to sales tax. Also, if the nonprofit organization engages in selling taxable items, the organization is required to collect sales tax on the items it sells and remit it to the state.
Application for Sales Tax Exemption
The Pennsylvania Department of Revenue is responsible for overseeing compliance with Pennsylvania tax laws. A nonprofit organization desiring a sales tax exemption must file an application for the exemption with the department on form Rev-72, which is available with instructions on the department's website (see Resources). There are five requirements for an nonprofit to qualify for a sales tax exemption: the organization’s purpose must be charitable; its motives cannot include any profit for a private purpose; a substantial portion of its services must be done free of charge; a substantial and indefinite group of persons must be a legitimate focus of a charity and benefit from the organization’s services; and the organization’s service must relieve some burden on the government.
The nonprofit organization's application for a sale tax exemption must also include supporting documentation regarding the five requirements. Such documentation should include a copy of an organizational document which indicates that, in the event of dissolution or sale of the organization, no surplus funds will be used for a private purpose -- that is, the surplus funds should be designated for donation to another charity. A copy of the organization's most current financial statement listing income and expenses for the organization, or a proposed budget showing the same information if the organization is newly formed. Although a federal tax exemption is not a prerequisite for a Pennsylvania sales tax exemption, a copy of any document or federal filing related to the organization's tax exempt status should be included with the application.
Once the nonprofit organization's application is approved, it can generally purchase items used to render its services free from sales tax by providing the vendor with a state-approved exemption certificate. A certificate form is available on the Department of Revenue's website (see Resources). The form must be filled-out completely to be effective. The certificates cannot be used to purchase items not specifically used in rendering the organization's charitable services. Also, construction materials purchased by the organization that are used and become a permanent part of real estate are not tax exempt.
Sales by the Nonprofit Organization
The sales tax exemption typically applies to purchases by the nonprofit organization, not to its sale of any taxable items. Like any for-profit business, an nonprofit organization engaged in such sales must register with the Department of Revenue, collect the sales tax and send it to the department on a quarterly basis. Sales tax still applies even when the organization is selling taxable items to its own members, regardless of whether a profit is made on the sale.