The 501 S(c)ene

The latest view on not-for-profit accounting issues

Are retail sales made by nonprofits exempt from Arizona transaction privilege tax?

Arizona Transaction Privilege Tax (TPT) and Use Tax are taxes the vendor is required to pay for the privilege of doing business in Arizona; otherwise known as a ‘sales tax.’ As a nonprofit organization, should you have to pay TPT and Use Tax on purchases made? What about collect and pay TPT Use Tax on sales you make to the public?

Purchases: Most nonprofits in Arizona are not exempt from paying TPT and Use Tax on purchases. There are some exceptions. Generally, most 501(c)3 organizations that are qualifying hospitals, community health centers, rehabilitation programs for mentally and/or physically handicapped persons, and health care organizations can apply annually to receive an exemption letter for paying TPT and Use Tax on purchases. (See the Arizona Department of Revenue publication 500 for more information on qualifying organizations and applying for an exemption letter.)

Sales: However, a nonprofit charitable 501(c)3 organization that is recognized by the Internal Revenue Service as a tax exempt organization is not required to collect and pay TPT on retail sales earned as long as it is related to the mission of the organization. The rules may apply differently to each organization depending on your organization’s specific circumstances. For more information on exemptions of TPT and Use Tax for nonprofit organizations, please visit www.azdor.gov and see publication 501.

By Michelle Housman