June 15, 2023 State law developments could impact tax-exempt organizations
The following state tax developments could affect tax-exempt organizations operating in certain states. Given the possible effects on their operations, tax-exempt organizations should consider monitoring their respective states' tax developments regularly. Arkansas Arkansas enacted H.B. 1532 (Act 338), which requires (1) a charitable organization with gross revenue contributions of over $1m during its preceding fiscal year to file an audited financial statement prepared by an independent certified public accountant; and (2) a charitable organization that received contributions of over $500,000 but less than $1m during its preceding fiscal year to have its financial statement reviewed by an independent certified public accountant. Act 338 also allows the Arkansas Secretary of State to grant extensions of time for related filings. In addition, charitable organizations that do not receive more than $50,000 in contributions are exempt from the requirements. Indiana Indiana Senate Bill 417 would increase the sales tax exemption threshold for nonprofit organizations to $100,000 (from $20,000). Organizations exceeding the threshold can qualify for the exemption again if their sales are less than $100,000 for two consecutive years. Maine The Act to Fund a Public Defender's Office Through a Tax on University Endowment Income (Maine L.D. 1328) would establish an endowment tax of 3% on funds that are held for investment by the trustees of a public or private college or university and generated by private donor trusts. The endowment tax would fund the Public Defender's Office Fund; any funds over $35m in that Fund would be transferred to the Maine Civil Legal Services Fund. Massachusetts Disability employment tax credit The Massachusetts Department of Revenue adopted a regulation (80 CMR 63.38JJ.1) explaining the disability employment tax credit, which can be claimed by an employer that employs a qualified employee with a disability. The refundable credit is the lesser of $5,000 or 30% of the wages paid to a qualified employee in the first tax year of employment and the lesser of $2,000 or 30% of wages in each subsequent year. The credit may be claimed for tax years beginning on or after January 1, 2023, for wages paid from that date. Form 990 filings Massachusetts Attorney General Andrea Joy Campbell announced on May 31, 2023 that, effective immediately, nonprofit organizations with gross revenue of $25,000 or less are no longer required to submit a federal Form 990 as part of their annual filings and disclosures. In addition, effective September 1, 2023, charities will be required to submit their filings electronically using the online Charity Portal; the Attorney General's office will no longer accept paper submissions. North Dakota North Dakota enacted H.B. 1210, which modified the sales and use tax exemptions for certain sales made to senior citizen organizations. The amended law requires the state Department of Health and Human Services and the Department of Transportation to notify the tax commissioner if a senior citizen organization no longer meets the qualifying criteria. The new rules are effective for tax events occurring after June 30, 2023. Tennessee The Tennessee Department of Revenue published the Tennessee Taxation of Nonprofit Organizations, a manual that provides information on sales and use tax, business tax, franchise and excise tax, and other miscellaneous taxes. Wisconsin The Wisconsin Department of Revenue updated a fact sheet on the community rehabilitation program credit, which equals 5% of what a taxpayer paid (up to $500,000) in a tax year to a community rehabilitation program for work performed for the taxpayer's business. The fact sheet explains how to claim the credit and how it is calculated. Implications While some of these changes in state law narrow the scope of state tax exemptions, reflecting states' budget constraints and need for greater revenue, other changes benefit tax-exempt organizations in the form of credits, streamlined processes, comprehensive tax guides and relaxed filing requirements for smaller organizations. To stay updated on tax developments that may affect them, tax-exempt organizations should continue to closely monitor court cases, legislation and guidance furnished by their state regulators. ———————————————
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor | ||||||||||||
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