- Sales and Use Tax (Board of Equalization)
- State Property Tax (Board of Equalization)
- State Payroll Tax (Employment Development Department)
- State Income Tax
- Federal Income and Payroll Tax (Internal Revenue Service)
Sales and Use Tax (Board of Equalization)
Nonprofit or exempt organizations do not have a blanket exemption from sales and use taxes.
Some sales and purchases are exempt from sales and use taxes. Examples of exempt sales include, but are not limited to, sales of certain food products for human consumption, sales to the U.S. Government, sales of prescription medicines and certain vehicle and vessel transfers. For more information on exempt sales, please read Publication 61, Sales and Use Taxes: Exemptions and Exclusions. For information on vehicle and vessel exemptions, see Publication 52, Vehicles and Vessels: How to Request an Exemption from California Use Tax.
There are special exemptions in the Sales and Use Tax Law for certain types of charitable organizations. For information on which charitable organizations qualify for exemptions read Publication 18, Tax Tips for Nonprofit Organizations.
State Property Tax (Board of Equalization)
Real and personal property owned and operated by certain nonprofit organizations can be exempted from local property taxation through a program jointly administered by the Board of Equalization and county assessors' offices in California. This exemption, known as the Welfare Exemption, is available to qualifying organizations that have income- tax- exempt status under Internal Revenue Code section 501(c)(3) or 23701(d) of the Revenue and Taxation Code and are organized and operated exclusively for religious, charitable, scientific or hospital purposes.
For more information on the Welfare Exemption, please view the Board's website at Welfare and Veterans' Organization Exemptions, or refer to Publication 48, Property Tax Exemptions for Religious Organizations, and Assessors' Handbook Section 267, Welfare, Church and Religious Exemptions. Individual copies may be ordered by downloading the Publications Order and Purchase Order for Assessors' Handbook Sections.
State Payroll Taxes (Employment Development Department)
Nonprofit organizations* are subject to Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI)** and state Personal Income Tax (PIT) withholding.
However, nonprofit entities that have an exemption under Section 501(c)(3) of the Internal Revenue Code (IRC) have a choice in the method of financing their unemployment costs. A nonprofit entity may elect to:
- Pay the same UI taxes under the same method as commercial employers (experience rating method).
- Reimburse the state for the full cost of all UI benefits paid to their former employees (reimbursable method).
Refer to EDD’s Information Sheet: Nonprofit and/or Public Entities (DE 231NP) for additional information.
To elect the reimbursable method, a nonprofit employer must file a Selection of Financing Method By a Nonprofit Organization (DE 1SNP), as well as a Registration Form for Nonprofit Employers DE 1NP, when registering. If the DE 1SNP is filed at a later date, it will be effective the first day of the quarter in which it is filed.
*Special Exclusions: Refer to EDD’s Information Sheet: Nonprofit and/or Public Entities (DE 231NP) for additional information
Government entities (states, counties, cities, districts, public agencies and authorities, school districts and community colleges) ). Refer to EDD’s Information Sheet: Nonprofit and/or Public Entities (DE 231NP) for additional information.
California Income Tax
A "tax-exempt" entity is a corporation, unincorporated association, or trust that has applied for and received a determination letter from the Franchise Tax Board stating it is exempt from California franchise and income tax. (California Revenue and Taxation Code Section 23701)
Although most California laws dealing with tax exemption are patterned after the Internal Revenue Code, obtaining state exemption is a separate process from obtaining federal exemption. Even if you have obtained federal exemption for your organization, you must submit an Exempt Application form (FTB 3500) to the Franchise Tax Board to obtain state tax exemption. You may apply for state tax exemption prior to obtaining federal tax-exempt status.
Federal Income and Payroll Tax (Internal Revenue Service)
IRS Publication 557, Tax-Exempt Status for Your Organization, discusses the rules and procedures for organizations that seek to obtain recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (IRC). It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. To qualify for exemption under the IRC, your organization must be organized for one or more of the purposes designated in the IRC. Organizations that are exempt under section 501(a) of the IRC include those organizations described in section 501(c). Section 501(c) organizations are covered in IRS Publication 557.