Starting Your Nonprofit: Part 4

Welcome to the last part of my Starting Your Nonprofit blog series.

This is a summary of the eleven steps it takes to launch your nonprofit organization. Buy the book for the full version.

 

Remember when you were a kid and you played on the slides at the park? First you climbed up, then you slid down. At this point in the process, you’ve climbed up the steps and are ready to slide down

With the IRS Determination Letter in hand, the federal government recognizes your corporation as a tax-exempt, nonprofit organization! Your state, however, still only recognizes your corporation as a regular corporation. The IRS does not communicate this vital bit of information to your state’s filing office, so you will have to apply for state tax exemption separately. Applications for state tax exemption are simple and usually only ask to see one letter: the IRS determination letter.

Forty-four states have a Secretary of State. Three states, Massachusetts, Pennsylvania, and Virginia, have a Secretary of the Commonwealth. Alaska, Hawaii, and Utah have neither; incorporation responsibilities are assumed by their Lieutenant Governor’s office.

 

When I use the phrase “state’s filing office,” depending on which state you’re incorporating in, I’m referring to your Secretary of State, Secretary of the Commonwealth, or the Lieutenant Governor’s office.

 

Step 9: Apply for your state tax exemption

Contact your state’s filing office to obtain the proper exemption application. Be prepared to provide your corporate name (aka your nonprofit’s name), corporate address, Federal Employer Identification Number, your business phone number, the primary purpose of your organization (reference the “purpose statement” in your Articles of Incorporation), and the IRS determination letter.

Your application will most likely become public information, so avoid using personal information.

California corporations:

Download, print, complete and snail mail Franchise Tax Board Form 3500A, Submission of Exemption Request. It’s free to file. When the Franchise Tax Board receives your application, you’ll receive a courtesy postcard letting you know they received your application.

Processing time: 90 days

Step 10: Register with the Attorney General

The state attorney general in each of the 50 U.S states and territories is the chief legal advisor to the state government¬† and the state’s chief law enforcement officer. In some states, the attorney general serves as the head of a state department of justice.¬†

Some states have an agency responsible for monitoring nonprofit corporations, also commonly referred to as nonprofit organizations and charities. The state relies on these agencies to ensure nonprofits are indeed operating for charitable purposes, and not for personal gain. Do your due diligence and contact your state’s filing office to inquire if your nonprofit needs to be registered as a charity.

Charities that are required to file do not technically need to file until assets are received. After assets are received, you will have about thirty days to register. But even though registering isn’t required until assets are received, register now. I guarantee if you wait, you’ll forget to.

California corporations:

Download, print, complete and snail mail the Initial Registration Form State of California Office of the Attorney General Registry of Charitable Trusts. The name is about as long as the form.

This agency is responsible for determining whether your organization is operating for a public purpose or personal gain, so it’s important to answer each question honestly and accurately. The form costs $25 to file and you’ll need to send a copy of your IRS Form 1023-EZ or IRS Form 1023 as well.

After registering your corporation aka nonprofit corporation aka nonprofit organization aka charity, you will be assigned a “charity number.” As with your corporate number and Federal Employer Identification Number, save this number for the duration of your organization.

Avoid including personal information on this application.

Processing time: 90 days

Step 11: Apply for your seller’s permit

Up until this point, you have most likely been paying the filing fees out of your own pocket. It’s time for that to end. Open a business checking account at a financial institution of your choice¬† in order to apply for your seller’s permit.

To be clear, nonprofits are considered “tax exempt” because they aren’t required to pay income tax; however, nonprofits are still required to pay sales tax.

Sales tax is what your organization will be required to collect and pass onto your state. But before you are able to legally sell anything, your organization needs to get a seller’s permit. You need a seller’s permit so your state knows who to collect sales taxes from. Seller’s permits are not specific to nonprofit organizations; all corporations engaged in selling are required to have a valid permit. Corporate numbers, federal employer identification numbers, and charity numbers cannot be used as, or in lieu of, a seller’s permit.

Applying for a seller’s permit is the last step in starting your 501(c)(3) nonprofit organization!

Filing requirements vary from state to state, but most tax-collecting agencies make it very simply to obtain a seller’s permit. Be prepared to provide your basic contact information, corporate number, EIN, bank account number, and routing number. You will only need to provide this information once.

California corporations:

Create an account with the State Board of Equalization. Click the “Register a business activity with BOE” link, select “Selling items or goods in California” in the My Business Activity section, and continue answering the questions as prompted. The application takes about thirty minute and is free to file. You’ll receive your seller’s permit, electronically, when you’re finished. Seller’s permits do not expire.

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