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What do nonprofits need to know about sales tax?

Questions:


Is my organization automatically exempt from paying sales tax?

No, even though you've obtained tax-exempt status with the IRS, you'll still need to apply for sales tax exemption with the State of Colorado to receive a Colorado exemption certificate. However, the application is for state-collected sales tax only, and does not apply to home-rule cities (see below for more information on home-rule cities). 

Organizations that are exempt from federal income tax under 501(c)(3) will generally be approved for a sales tax certificate of exemption in Colorado. 

If seeking exemption in a home-rule city, you must contact the city for further information.

View the Colorado Sales/Use Tax Application     Learn More


What purchases are exempt from state-collected sales tax?

Purchases made to conduct regular charitable functions and activities from the organization's funds. Purchases made by the organization that will be reimbursed by any person does not qualify as a tax-exempt purchase. 

Again, this only applies to state-collected sales tax. Home-rule cities make their own tax regulations and must be contacted for further information (see below).


How do I purchase items that are exempt from sales tax?

To speed up your purchase process, your organization may complete an affidavit of exempt sale and give to the seller, along with your supporting documentation.

Watch this short video to learn more about purchasing tax exempt items. 

Home-rule cities have their own version of this form that can generally be found on their website.

View the Affidavit of Exempt Sale 


What is a home-rule city and what does that mean for my nonprofit?

The state collects sales tax and other local taxes on behalf of many Colorado communities. However, home-rule cities make their own tax regulations and collect their own taxes. Exemptions for home-rule cities must be applied for separately and may be subject to different requirements than the federal and state exemptions. Home-rule cities also have their own version of an affidavit of exempt sale that you'll need to complete. 

View a List of Home-Rule Cities (pages 8-10)

Denver Changes to Sales Tax Exemption

As reported in the Denver Post on June 28, Denver City Council approved an ordinance to clarify the city's definition of charity for determining exemption from sales, use, lodger's, and employer occupational privilege tax. 

CB 17-0529 would amend the definition of charitable corporation in the municipal code to mean "...any organization that has been exempted from federal income tax as a nonprofit organization in good standing under section 501(c)(3) [...] and that has applied for and received a valid letter of exemption from the Manager [of Finance]."  

Read Our Complete Policy Update


If we sell items, does my nonprofit need to collect sales tax?

In order to be exempt from collecting sales tax, your organization must meet the following:

  • You must be a 501(c)(3) and have a Colorado exemption certificate,
  • Sales must be conducted for a total of 12 days or fewer during a calendar year, and
  • Net proceeds from all events/sales is less than $25,000 in that calendar year.

If you conduct sales for more than 13 days or reach $25,000 in net proceeds, your organization must obtain a sales tax license and remit sales tax on all sales that occurred in that calendar year, including sales that were previously exempt prior to the date when the threshold was exceeded. 

Your organization should contact your local government for regulations on collecting local taxes. If the local jurisdiction is a state-collected tax jurisdiction that does not allow the exemption, your organization should obtain a Colorado sales tax license so that the organization can report and pay local tax to the department.

Learn More   Obtain a Sales Tax License

Topics of Interest: 
Financial Management

Disclaimer

These articles, samples, and resources are offered for informational purposes only and should not be construed as professional advice. If used, your organization should tailor samples to best fit the organization’s specific circumstances. We encourage your organization to seek appropriate professional assistance as needed.

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