How to Get Tax-Exempt Status in New York
Navigate the specific procedures for securing and maintaining New York tax-exempt status for your organization, including for sales and corporate franchise tax.
Obtaining tax-exempt status in New York involves both federal and state-level applications. It provides relief from certain state taxes, primarily sales and corporate franchise taxes, for qualifying organizations. This status is granted to entities organized and operated for specific nonprofit purposes, allowing them to dedicate more of their resources to their missions.
To become tax-exempt, organizations must establish their eligibility based on their purpose and activities. A detailed application package must then be assembled and submitted to the appropriate state departments for review.
Determining Eligibility for NYS Tax Exemption
Securing federal tax-exempt status under Section 501(c)(3) of the Internal Revenue Code is a common first step, accomplished by filing Form 1023 with the IRS. While a federal determination simplifies the state process, it is not required. An organization can apply for a New York sales tax exemption without it by submitting more extensive documentation directly to the state.
To qualify, an organization must be formally organized and operate exclusively for one or more exempt purposes, such as charitable, religious, educational, scientific, or literary activities. The state reviews the organization’s mission and its operations to ensure they are consistent with these classifications.
The organizing documents, like the articles of incorporation or constitution, must contain language limiting the organization’s purpose to exempt categories. They must also include a dissolution clause dedicating any remaining assets to another exempt organization upon dissolution, rather than to private individuals.
An organization’s activities must primarily further its exempt purpose. Any activity resulting in private inurement, where income or assets benefit individuals, is prohibited and will lead to a denial of the application.
Required Information and Documentation for Application
If an organization has federal tax-exempt status, a primary document is the 501(c)(3) determination letter from the IRS. This letter serves as proof that the federal government has recognized the organization as a tax-exempt entity.
Governing documents are also required. For a corporation, this includes the Certificate of Incorporation, certified by the New York Department of State, along with the organization’s bylaws. These documents must articulate the organization’s exempt purpose.
Applicants must prepare recent financial statements, including a balance sheet showing assets and liabilities, and a statement of revenues and expenses. A detailed narrative describing the organization’s activities, covering past, present, and future plans, is also necessary.
With these documents, an organization completes the state forms. For exemption from state sales tax, Form ST-119.2, Application for an Exempt Organization Certificate, is required. For organizations with 501(c)(3) status, the corporate franchise tax exemption is automatic, but Form CT-247 can be filed to officially document the exemption.
The Application Process for NYS Tax Exemption
For sales tax exemption, the completed Form ST-119.2 and all required attachments must be submitted to the New York State Department of Taxation and Finance. The exemption from corporate franchise tax is often automatic for organizations with federal 501(c)(3) status.
Property tax exemption is managed at a different level of government. Unlike sales and franchise taxes, property tax exemptions are administered by local municipalities. Organizations seeking to exempt their real property from taxes must contact their local city, town, or county assessor’s office, as each has its own forms and procedures.
After submitting the state-level applications, the Department of Taxation and Finance will review the materials, which can take several months. If approved, the organization will receive an Exempt Organization Certificate (Form ST-119) for sales tax and a separate letter confirming its exemption from corporate franchise taxes.
Maintaining Your Tax-Exempt Status
Securing tax-exempt status requires ongoing compliance. The organization must continue to operate exclusively for the exempt purpose stated in its application. Any significant deviation from this purpose or engagement in prohibited activities, such as substantial lobbying, can lead to the revocation of its exempt status.
Annual filing requirements are a component of maintaining this status. In New York, most tax-exempt organizations must file an annual financial report, Form CHAR500, with the NYS Attorney General’s Charities Bureau. This report is submitted with a copy of the organization’s federal Form 990.
Organizations registered to solicit contributions in New York with total annual revenue over $250,000 must also file their Form CHAR500 and attachments with the New York State Department of State.
If an organization does not file its annual reports or operates outside its stated mission, the state can revoke its tax-exempt status. This would make the organization liable for paying sales and corporate franchise taxes, impacting its financial resources.