David Heinen, Vice President for Public Policy and Advocacy, North Carolina Center for Nonprofits
State legislatures around the country are considering significant changes to their sales tax laws this year. If North Carolina follows this trend, there are four possible sales tax changes that could have a significant impact on nonprofits:
- Legislators in North Carolina and many other states could consider proposals on how North Carolina collects sales tax from out-of-state sellers in light of last year’s South Dakota v. Wayfair Supreme Court ruling. The Wayfair decision makes clear that states have the power to impose taxes on entities beyond their borders and allows states to collect sales taxes for online purchases of goods and services from sellers without a physical presence in the state. Depending on how North Carolina and other states choose to implement this new taxing authority, nonprofits that sell goods and services online may need to begin collecting and remitting sales tax in more states, and nonprofits that purchase things online may need to weigh the benefits of applying for sales tax exemption in some other states. To help your organization better understand the forthcoming changes in sales taxes, the National Council of Nonprofits recently published an excellent analysis of the impact of the Wayfair decision on nonprofits.
- If the N.C. General Assembly chooses to revisit its sales tax laws in light of Wayfair, it may also consider changing the sales tax exemption process for nonprofits. Currently, North Carolina nonprofits pay sales tax when they purchase goods (and some services), but (most) nonprofits get the privilege of begging the state for refunds of (most of) the sales taxes they pay (as long as they keep good records and fill out the paperwork correctly). (Note: All the parenthetical disclaimers in the previous sentence should be a hint that the sales tax "exemption" process in North Carolina is far from perfect!) In 2017, the N.C. Senate considered a proposal to simplify this process by switching to a system of sales tax exemption. The Center will continue to advocate for lawmakers to make all 501(c)(3) nonprofits fully exempt from sales tax in North Carolina.
- If lawmakers need new revenue to pay for other policy priorities, they could consider expanding sales tax to more services (potentially including services provided by nonprofits) or creating new limits on nonprofit sales tax refunds.
- As legislators look for ways to clarifying existing tax laws, they could consider clearing up ambiguity in the sales tax on admission fees to entertainment events by expressly exempting nonprofit fundraising events from sales tax.