State Reports and Registrations

While IRS tax-exempt status provides an exemption from federal taxes, it does not cover state taxes. Most states require additional applications to exempt the organization from state income and sales taxes.

In some states, corporate income tax is automatically exempt when the IRS determines tax-exempt status. However, there are many states where that is not the case. Additionally, almost every state requires an application for sales tax exemption. Sales tax exemptions remove sales tax from purchases made by the organization. In addition to the initial filing, most states require additional annual compliance documents. These vary by state but typically include:

• Annual reports
• Tax returns and exemption renewals
• Charity registration and renewals
• Gaming registrations
• Local registrations

When an organization operates in multiple states, it must adhere to the reporting requirements for every state it holds a foreign registration. That means each state a nonprofit organization works in multiplies the number of state and local compliance documents.

Similar to the IRS, states issue penalties for failing to file state compliance documents. These can range from fines to revocation of the entire organization. The compliance specialists at BryteBridge are ready to answer questions about your organization’s state compliance requirements.

Penalties For Not Filing

Failure to file an Annual Report or state tax return when they are due may lead to an automatic dissolution of the organization. Once dissolved, the nonprofit is no longer a legal corporation in the state. Reinstatement often brings hefty fees, in addition to filing past-due Annual Reports. One BryteBridge client faced $1,277.50 in reinstatement state fines after Illinois administratively dissolved their organization!

• Types of State Reports and Registrations

Just as there are 50 states in the union, there are many different reporting requirements for a nonprofit organization. Below, we cover the most common reports. However, it is best to check with a BryteBridge specialist to prepare and ensure the specific requirements for your organization.

•  Annual Reports

An Annual Report is a document letting the state know your entity is still active. It also updates state records with a change in address, phone number, or, in some states, board members. Typically, nonprofits file Annual Reports with the Secretary of State. While we refer to this document as an Annual Report (as so named in most states), some states do not require yearly reporting. For example, Ohio only requires nonprofits to report every five years. The due date for an organization’s Annual Report depends on the state of incorporation. In some states, initial annual reports are due within 60 days of incorporation. Refer to the included chart for more information.

• Tax Returns and Exemption Renewals

Like filing a 990 tax return with the IRS, many states require nonprofit organizations to file state tax returns every year. This requirement exists even though the organization is not paying corporate taxes.Additionally, the organization may need to file annual renewals for state tax-exempt status, depending on the state. Unlike Annual Reports, most states are far less likely to require renewing sales tax and exemption documents. Refer to the included chart for more information.

• Charity Registration Renewal

Charity Registrations are required to ask people and companies for donations in the state of operation. For more information about charity registrations, please refer to the previous chapter.

• Gaming Registration

Many states require additional registration and renewals for gambling or bingo activities. These special licenses are in addition to all other reporting requirements. For more information about gaming licenses, refer back to the section on UBIT reporting or contact a BryteBridge specialist.

• State and Local Licenses

In addition to state registrations outlined in this chapter, some nonprofit organizations may need to apply for additional state licenses depending on their purpose and operation.For example, a homeless shelter may need to apply for state and local licenses to operate a residential facility. Sometimes these licenses grant permission for general operation, and others specify the maximum number of residents permitted. As another example, an organization providing legal aid may need authorization from the state bar governing lawyers.Nonprofit organizations are not exempt from state license requirements. BryteBridge specialists can assist in determining the license requirements for your organization.

• Foreign Registrations

When an organization operates in multiple states, it must adhere to the reporting requirements for every state it holds a foreign registration. For more information about foreign registrations, refer back to the previous chapter or contact a BryteBridge specialist.

• Local Registrations

In addition to state documentation, all county and municipal governments require a business license or occupancy permit. These permits pay any local taxes or fees and allow the business to operate in the local municipality.These licenses or permits are typically assigned based on the organization’s address and depend on the type of service. The filing and fees process varies widely depending on the municipality, so it is essential to follow local rules.

Nonprofits using a board member’s home address must verify that the local government permits businesses in the residential neighborhood. Some cities or homeowners associations may have deed restrictions preventing home businesses.