August 16, 2021
Tax-exempt organizations should note recent state law developments
Three recent state tax developments serve as important reminders to tax-exempt organizations: monitor state law developments regularly.
New York — Federal Form 990 and donor disclosure developments
A bill passed by the New York State legislature (A1141A/S4817A), now awaiting Governor Andrew Cuomo's signature, would repeal amendments to state law that, effective January 1, 2021, have required IRC Section 501(c)(3) entities to (1) file Form 990 information returns with both the NY Attorney General's Charities Bureau and the NY Department of State and (2) disclose certain donor information.
The repeal legislation closely follows a recent U.S. Supreme Court decision regarding the permissibility of requiring donor disclosure information. On July 1, 2021, the Supreme Court reversed and remanded (Americans for Prosperity Foundation v. Bonta; see Tax Alert 2021-1350) a Ninth Circuit decision that would have continued to allow California to require charities to submit federal Form 990 Schedule B, Schedule of Contributors, to the state's Attorney General (AG). Applying an exacting-scrutiny standard, the Supreme Court concluded that California's requirement to submit Schedule B was not narrowly tailored to the state's interest of investigating misconduct by charities.
Following the High Court's decision, the NY AG's Charities Bureau stated on its website that it was suspending collection of federal Form 990, Schedule B "while we review any amendments that may be necessary to our policies, procedures and forms in order to comply with the U.S. Supreme Court's decision in Americans for Prosperity Foundation v. Bonta." Additionally, any NY notices regarding deficiencies due to missing or incomplete Schedules B are no longer operative and do not require a response or corrected return.
Kansas — guidance on Eisenhower Foundation Credit
A July 1, 2021 announcement by the Kansas Department of Revenue (Notice 21-10) explains the state's newly enacted Eisenhower Foundation Credit, which Kansas taxpayers may claim against income and privilege taxes for tax years 2021—2025. A tax credit will be provided for individuals and corporations that make contributions to the Eisenhower Foundation, a nonprofit organization with a mission to honor the life and leadership of Dwight D. Eisenhower. The tax credit is limited to:
The amount of the credit cannot exceed the amount of tax the taxpayer owes, cannot be carried over to another year and is not refundable.
California — eliminates application fees and filing fees for tax-exempt organizations
Effective January 1, 2021, Senate Bill 934 eliminated filing fees associated with two California nonprofit filings. There is no longer a $25 filing fee attached to California Form 3500, Exemption Application, used by nonprofit organizations that are seeking state income tax exemption. The $10 filing fee and $25 late return filing fee for California Form 199, Exempt Organizations Annual Information Return, is no longer required for any such return due on or after January 1, 2021. Although the late return filing fee has been repealed, late filing penalties ($5 for each month, or part of the month, the return is late, not to exceed $40) will still apply.
Recently issued state law updates demonstrate states' continued efforts to respond to court decisions, economic changes and the needs of nonprofit beneficiaries. As such, tax-exempt organizations should continuously monitor changes in state law accomplished through legislation and notices, as new requirements, legal challenges and funding updates will likely continue in response to economic revitalization.
Please contact your Ernst & Young LLP professional for further information.
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