Ohio provides an exemption from the sales tax for purchases made by nonprofit charitable organizations. We are often asked the types of entities that might qualify for the exemption, and whether the entity must be exempt from federal income taxes under IRC Section 501(c)(3).The exemption is available to a number of entities listed in the statute. The three most common types of entities that qualify for the exemption are:
- Organizations exempt from federal taxes under IRC 501(c)(3)
- Nonprofit organizations operated exclusively for charitable purposesExemption under IRC 501(c)(3) is a sufficient basis for claiming the sales tax exemption. However, it is not required. A nonprofit organization operated exclusively for charitable purposes that is not exempt under IRC 501(c)(3) may still qualify for the sales tax exemption.
For sales tax purposes, “charitable purposes” covers a broad range of activities, including the relief of poverty, the improvement of health, and the promotion of education. A number of other activities are also covered. So long as the entity is organized on a nonprofit basis and operated for a charitable purpose, it may claim the sales tax exemption even if it is not exempt from federal taxes under IRC 501(c)(3).
The exemption is not unlimited, however. The exemption does not apply to sales for use in carrying on a trade or business. Therefore, a charitable organization may engage in activities that generate taxable business income unrelated to the otherwise exempt charitable purposes. Any purchases related to those activities will not qualify for the sales tax exemption.