Tax Exemptions for Charitable Organizations Explained

Charitable organizations can qualify for a number of tax exemptions in Florida. This includes such favorites as the Corporate Income Tax, the Sales and Use Tax, as well as the Reemployment Tax (also known as Unemployment Insurance). However, each exemption for charitable organizations comes with its own documents for filing and standards to meet. An organization that is exempt from one tax will not necessarily be exempt from the others. Running a successful charity requires knowing everything you can about exemptions. This includes obtaining them, as well as what you do and don’t qualify for.

Don’t have a charitable organization yet? Then hop on over and read our overview on forming a nonprofit corporation here.

Corporate Income Tax

Almost every business in Florida pays corporate income tax. However, this isn’t always the case for charitable organizations (private or otherwise) that are already exempt from Federal Income Tax. But there is one exception. An organization will still be subject to Florida corporate income tax whenever it derives any income from trade or business activities that are unrelated to the charity or its mission. In this situation, the organization will need to file either a Florida Corporate Income/Franchise Tax Return (Form F-1120) or the Florida Corporate Short-Form Income Tax Return (Form F-1120A) if they want to avoid penalty.

But what counts as unrelated trade or business under Florida law? Let’s say, for example, that your charitable organization opens up a small restaurant in downtown St. Petersburg. If all of the restaurant’s proceeds go towards your charitable goal, then you’re in the clear – no income tax is needed. On the other hand, if the restaurant is a profit-driven operation with no real connection to the charity, then you better pony up those taxes or risk losing your exemptions all together!

Reemployment Tax

Also known as Unemployment Insurance, Reemployment Tax covers business owners when a former employee receives reemployment benefits. Charitable organizations composed of three or fewer individuals don’t need to worry about it. With the exception of churches and church schools, charitable and non profit organizations that employ four or more people for any part of a day in 20 different calendar weeks during the current or preceding calendar year.

The owners of charitable organizations can be classified as either contributing employers or as reimbursing employers. Contributing employers must submit quarterly reports and tax due after applying their tax rate to each quarter’s taxable wages. Reimbursing employers, on the other hand, have to pay the same amount that the organization pays in benefits to its former employees to the Unemployment Compensation Trust Fund. Reimbursing employers are billed each quarter for the previous quarter’s payout.

Both reimbursing employers and contributing employers submit quarterly wage reports, no matter the method of payment. Should an employer wish to change their method of payment, they will sign a special election form and to continue with the new method for a minimum of two years.

Sales and Use Tax

To be eligible for exemption from the Florida sales and use tax, a charitable organization must first obtain a Consumer’s Certificate of Exemption (Form DR-14), also known as a sales tax exemption certificate. An organization can apply for this exemption with the appropriately-named Application for a Consumer’s Certificate of Exemption (Form DR-5).

Showing the certificate to vendors lets the charity purchase or rent items and services tax-free. Such purchases and rentals must be made with the organization’s funds. Transactions made with the personal funds, for instance, are still taxed whether or not the representative was paid back.

Sales by Charitable Organizations

Most charities selling taxable items or services must register with the Department of Revenue to collect, report, and pay sales tax. The same goes for organizations that lease or rent commercial property (both real and transient rental) to others in Florida. There are, thankfully, some exceptions to this rule.

Charities focusing on the educational or cultural development of minors can sell donated property tax exempt. This goes for organizations promoting good character or sportsmanship, too. However, said organization must also hold the aforementioned Consumer’s Certificate of Exemption as an organization benefiting minors.

The other exception applies to religious organizations that have an established physical place of worship where religious services occur regularly. As long as that organization holds a Florida Consumer’s Certificate of Exemption, it will be allowed to sell, lease, or rent tax exempt so long as it does not rent or lease commercial real property, sleeping accommodations, or living accommodations to others.

Other Requirements for Charitable Organizations

Charitable organizations and sponsors soliciting contributions in Florida must register each year with the Division of Consumer Services.  Those intending to solicit the public at Florida highway rest stops can obtain their permits through the Florida Department of Transportation’s One-Stop Permitting website.

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