Exempt Organizations and Sales Tax

The latest view on not-for-profit accounting issues

In Arizona, entities are required to pay a “transaction privilege tax” on sales of goods, most commonly referred to as a “sales tax.” However, under certain circumstances, entities are exempt from collecting and remitting this tax.

If your entity is recognized by the IRS as a non-profit charitable organization under IRC Code section 501(c)(3), retail sales made by your entity for the exempt purpose of the organization are not required to collect or remit “sales” tax on those transactions. For example, if your organization operates a thrift store, you are exempt from Arizona State transaction privilege (sales) tax on the retail transactions.

This exemption is only specifically for state tax and is not always true for city or county sales tax. If your organization is operating a thrift store or you have similar retail sales, you should research your city and county sales tax code to ensure compliance with their assessed taxes for you location. It is vital for every organization to be aware of and compliant with all tax codes governing their entity.

By Samantha E. Mahlen, CPA