September 12, 2024 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. Connecticut HB 05524, signed by the Connecticut governor on June 6, 2024, extends the net-operating loss carryforward period to 30 years for tax years beginning on or after January 1, 2025. Previously, the carryforward period was limited to 20 years. The law also allows taxpayers in seven localities to claim certain property tax exemptions past the filing deadline and creates a working group to examine the state's tax expenditures. The Internal Revenue Service announced tax relief for individuals and businesses in Connecticut affected by severe storms and flooding from torrential rainfalls that began on Aug. 18, 2024. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 18, 2024, through Feb. 3, 2025 (postponement period). As a result, affected individuals and businesses will have until Feb. 3, 2025, to file returns and pay any taxes that were originally due during this period. Indiana The Indiana Department of Revenue has updated Sales Tax Bulletin #10 to include information on the creation of the $100,000 sales threshold for sales by tax-exempt entities and how the exemption applies to various IRC Section 501(c) entities. The update also clarifies how the exemption rules apply to IRC section 501(c) organizations such as retirement funds for teachers, cemetery companies, and crop operations. Kentucky The Kentucky Department of Revenue (DOR) has announced it will honor recently announced IRS tax relief for taxpayers in parts of Kentucky affected by severe storms that began on April 2, 2024; the relief aligns with recently announced IRS Disaster relief (see Tax Alert 2024-1580). The tax relief postpones various tax filing and payment deadlines that occurred from April 2, 2024, through November 1, 2024. This extension to file and pay taxes does not apply to sales tax and other types of taxes. Late filing and payment penalties will be waived for those affected taxpayers seeking this relief, though Kentucky's tax laws have no provision for the waiver of interest. Maine Maine Revenue Services on August 19 revised its exempt-organizations-and-government-entities bulletin to include information about the sales and use tax exemption for goods and services that are sold to nonprofit entities and used primarily for an exempt purpose. Beginning January 1, 2025, the Maine sales tax law will provide a sales tax exemption for sales to nonprofit organizations, if the tangible personal property or taxable services sold are to be used primarily for the purposes for which the nonprofit organization was organized. Exempt organizations must receive an exemption letter from Main Revenue Services (MRS) to qualify for the exemption; an IRS exemption letter is not sufficient to make exempt purchases. This sales tax exemption does not apply to the service provider tax. Minnesota The Minnesota Department of Revenue has announced tax filing and payment relief for taxpayers in 19 counties that were affected by severe storms and flooding; the relief aligns with recently announced IRS disaster relief (see Tax Alert 2024-1580). Taxpayers in affected locations who have Minnesota tax returns or payments due from June 16 to July 4, 2024 will not be assessed penalties or interest if they contact the Department and ask for an abatement before November 1, 2024. Nevada The Nevada Tax Commission on June 20, 2024 amended regulations concerning the letter of exemption that is issued by the Department of Taxation to religious, charitable, or educational organizations for sales and use tax purposes. The Commission clarified that an exemption letter is effective only for sales, or sales or use tax that accrues, on or after the date the letter is issued by the Department of Taxation and does not influence any obligation incurred before that date. New Hampshire A bill (HB 1055) signed into law on July 12, 2024 amends the property tax exemption for charitable organizations by allowing organizations to file their exemption application after the June 1 deadline if the local tax rate for that year has not yet been approved. New York The New York Court of Appeals, in Brookdale Physicians' Dialysis Associates Inc. v. New York Department of Finance, held that real property owned by an exempt organization must be used directly for a purpose relating to that organization's exempt purpose, or it may risk losing its tax exemption. The Court of Appeals in Brookdale construed the purpose of the exempt organization narrowly, finding that a property owned by an exempt organization that raises and manages funds for healthcare purposes did not qualify for a property tax exemption when leased to a for-profit healthcare corporation. In Sisters of the Presentation of the Blessed Virgin Mary v. Van Wagenen, the New York Supreme Court Appellate Division held that an assessor may rescind a property tax exemption for a property that is no longer used for an exempt purpose or no longer used at all. The court in Sisters concluded that a property with a closed school and ancillary building used for storage no longer qualified for an exemption because it no longer served the organization's religious or educational purpose. The Internal Revenue Service announced tax relief for individuals and businesses in New York affected by severe storms and flooding from torrential rainfalls that began on Aug. 18, 2024. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 18, 2024, through Feb. 3, 2025 (postponement period). As a result, affected individuals and businesses will have until Feb. 3, 2025, to file returns and pay any taxes that were originally due during this period. South Carolina The South Carolina Department of Revenue (SCDOR) has issued tax relief for victims of Hurricane Debby. Several return and payment deadlines between August 4, 2024 and February 3, 2025 have been extended to February 3, 2025, in line with recently announced IRS disaster relief (see Tax Alert 2024-1580). The tax relief applies to all 46 South Carolina counties. The SCDOR will automatically provide relief to affected taxpayers. Tennessee The Tennessee Department of Revenue has updated its taxation-of-nonprofits manual, providing additional information on the documentation required to apply for a tax-exemption certificate by nonprofit entity type and additional information on the sales-and-use-tax exemption for the sale of used clothing by nonprofits. The update also expunged references to the franchise tax Schedule G property measure. Implications These decisions reflect a complex and evolving landscape for state and local tax exemptions for charitable and religious entities in different jurisdictions. Several states have taken action to provide relief to taxpayers affected by severe storms that occurred in the spring of 2024, while others have provided updates and additional information concerning changes to sales and use exemptions and their effects upon tax-exempt entities. Tax-exempt organizations should continue to closely monitor legal developments in their respective states and localities to understand their tax obligations, opportunities for exemptions or credits, and other tax developments that may affect them.
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