September 8, 2023
Tax-exempt organizations could be impacted by state law developments
The following state tax developments could affect tax-exempt organizations operating in those states. Given the possible effects on their operations, tax-exempt organizations should consider monitoring their respective states' tax developments regularly.
Florida and South Carolina
The IRS announced (IR-2023-159 and IR-2023-163) on August 30, 2023 and September 6, 2023, respectively, that individuals and businesses affected by Idalia in parts of Florida and all of South Carolina have until February 15, 2024, to file and make payments on various federal individual and business tax returns. The automatic relief applies to, among others, individuals who filed extension requests for their 2022 returns (although not for the payments), quarterly payroll and excise tax returns normally due after September 15, 2023, and calendar-year tax-exempt organizations with an extended filing due date of November 15, 2023.
The Georgia Department of Revenue released two policy bulletins (SUT-2023-02 and SUT-2023-03) providing guidance on the sales and use tax exemption for the sale or use of tangible personal property used for renovating and expanding qualifying aquariums and zoological institutions. To qualify for the relief, the aquarium or zoo must be located in Georgia, charge for admission and be, or be owned by, an IRC Section 501(c)(3) organization. The guidance is effective July 1, 2023, through December 31, 2026.
In Carle Foundation v. Department of Revenue, a case that has been litigated since 2007, an Illinois appellate court found that an Illinois tax-exempt hospital complex that had its property tax exemption revoked for four parcels between 2004 and2011 is entitled to a partial property tax exemption and refund for each of those parcels in each of those years, because the hospital met the requirements to qualify for partial exemption. In particular, the appellate court upheld a lower court’s ruling that Carle qualified for partial exemption for its four parcels because it:
The Indiana Department of Revenue updated an information bulletin on applying state sales tax to sales and purchases by nonprofit state colleges and universities. The bulletin reflects legislation enacted in May (Senate Enrolled Act 417), which created a $100,000 sales threshold before sales by nonprofit state colleges and universities trigger the requirement to collect sales tax.
Louisiana Gov. John Bel Edwards (D) approved legislation (Act 432) exempting qualifying real estate investment trusts (REITs) from paying corporate franchise tax. The exemption applies to a limited liability company filing as a REIT for federal income tax purposes in which 100% of the company's shares of common stock are owned by a tax-exempt organization as of July 1, 2023. The Act applies to all franchise taxable periods beginning on or after January 1, 2024.
A new Texas law (H.B. 456) exempts specified charitable organizations from ad valorem tax on real property if the real property consists of an interest in a mineral in place, including a royalty interest, as long as the interest is not severed from the surface estate or was donated to the charitable organization by the previous owner of the interest. The exemption applies to ad valorem taxes imposed for tax years beginning on or after January 1, 2024.
The Washington Department of Revenue released a special notice regarding the requirements for property tax exemption for real and personal property used by a nonprofit organization to operate an approved recovery residence registered with the state health care authority.
Tax-exempt organizations should remain cognizant of states’ continued review of their property and sales tax exemptions, and of applicable exemptions from state taxes.
Organizations that are in areas affected by the recent hurricane should note the extended deadlines in parts of Florida and in all of South Carolina and be alert for further additions to the list of qualified disaster areas that may be forthcoming from the IRS.
— For more information about EY's Exempt Organization Tax Services group, visit us here.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor