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July 2022 deadline, taxpayers should ■ What type of exempt organization
prepare and file their Form 637 registra- is the entity and what is its purpose?
tion, consider preparing comments to For example, many states provide Even if an exempt
Treasury on areas of uncertainty, and exemptions for governmental entities organization’s
evaluate customer contracts and set pric- but may not provide an exemption sales qualify for an
ing for July. for every business activity of a
The reinstatement of the Superfund typical Sec. 501(c)(3) organization. exemption, nexus
tax will impose increased costs on tax- Additionally, whether the entity is an may still exist and
payers that manufacture, use, or import association, a foundation, a charitable
relevant chemicals. Additionally, busi- organization, or a private or public could expose the
nesses that purchase these chemicals college or university may matter. entity to other
may see increased prices, as the amount ■ What types of sales does the orga- compliance or state
representing tax may be included in nization make? Common sales may
tax obligations.
updated contracts for these products. include membership dues, printed or
With such a relatively short amount of e-delivered publications, in-person or
time before the tax becomes effective, it virtual hosted conferences, tickets to
is imperative that businesses potentially events, or prepared food and meals, Additionally, sales tax nexus can be
subject to the tax familiarize themselves among many others. created through economic activity, such
with the existing statutes, regulations, ■ What types of purchases does the as exceeding a certain threshold of sales
and tax forms relevant to the tax. Fur- organization make, and are they revenue or number of transactions in a
ther, taxpayers should consult with their intended for its own use? Common state, even if the business has no physi-
tax advisers to avoid potential compli- purchases include promotional items cal presence. For example, the District
ance issues. to be distributed as “free swag,” office of Columbia requires a taxpayer that
From Eugene Boakye, J.D., LL.M. equipment, literature, and written has either gross receipts from all retail
(Eugene.Boakye@rsmus.com); promotional materials. sales delivered in the District exceeding
Trina Pinneau, J.D., LL.M. Every exempt organization needs to $100,000 or 200 or more separate retail
(Trina.Pinneau@rsmus.com); be familiar with the laws of the specific sales to register for sales and use tax
and Deborah Gordon, J.D., LL.M. state or locality where the organiza- purposes. Maryland and Virginia have
(Deborah.Gordon@rsmus.com), tion operates. The following discussion adopted similar economic sales tax nexus
Washington, D.C. highlights some of the basic state sales provisions. Nexus under an economic-
tax considerations for any business or activity standard is generally established
organization, with a focus on exempt in every state when a business has as
Exempt Organizations organizations. Understanding nexus, little as $100,000 in sales to the state
taxability/exemptions, and compliance during the year, sometimes without re-
Sales tax considerations for is necessary to successfully navigate a gard to the taxability of those sales.
exempt organizations complex and nonuniform state sales and Considering whether nexus exists
Exempt organizations often dedicate use tax landscape. is the first step in determining state or
resources to complying with federal tax local sales tax exposure. It is important
laws but may not recognize the com- Nexus to understand that nexus is not abro-
plexity of state and local sales and use Nexus for sales and use tax purposes gated simply because an entity may be
taxes. Unfortunately, the states have not almost always is created if a business has exempt. In addition, even if an exempt
uniformly adopted any blanket sales tax a physical presence in a state, whether by organization’s sales qualify for an exemp-
exemptions for exempt organizations, having inventory, offices, or employees tion, nexus may still exist and could
regardless of whether an entity’s purpose in the state. With the recent popularity expose the entity to other compliance or
is charitable, educational, religious, or of remote work, employees perform- state tax obligations.
even state-related. That said, favorable ing duties in home offices in different
sales and use tax treatment often does jurisdictions from their normal business Taxability and exemptions
exist for exempt organizations. location may be establishing sales and Once nexus is established, exempt orga-
But a number of factors influence use tax nexus for the exempt organiza- nizations must determine whether there
whether and how sales and use tax ex- tion, as well as establishing nexus for is a sales tax collection and remittance
emptions may apply, including: other tax types. obligation on their sales or whether a use

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