Do Nonprofits Pay Federal Excise Tax Surcharges?
After being recognized as a tax-exempt nonprofit organization by the IRS, a nonprofit is exempt from paying taxes on revenues generated in support of the organization's mission. Additionally, some organizations could be eligible for exemption from the payment of certain excise taxes. Because the IRS is very strict about the rules for exemption, it is critical an organization establish its exemption and document any proposed claims thoroughly.
An excise tax is levied by the federal government on the bulk purchase of high-volume items. Telephone and gasoline taxes are common kinds of excise taxes. It differs from a sales tax in that the tax is charged on a per-item or per-unit basis rather than as a percentage of sales. Unlike sales taxes, many excise taxes are charged directly by the federal government to companies doing business within the country's borders. Some states have excise taxes instead of or in addition to sales taxes. The companies then add the tax to the price of the goods or services they sell, passing them on to the customer.
Excise tax is much different from sales tax. Sales tax is paid to the state. Some states allow nonprofit companies within that state to avoid paying the tax altogether, while some states allow nonprofits to file to have paid tax returned. Depending upon whether a nonprofit meets strict criteria, it may be able to have the government reimburse its tax expenditures, but the taxes must be paid the vendors first. If a nonprofit has been paying an excise tax, it can ask for the reimbursement when it files its tax returns. To receive the reimbursement, the company must file a separate form, indicating the amount paid in excise tax and demonstrating the purchase was used for the nonprofit's mission exclusively. For example, some fuel costs are exempt, such as those used for agricultural purposes.
Although telephone tax is an excise tax most nonprofits pay, according to the IRS, it is reimbursable only to educational organizations, governments and nonprofit hospitals. The IRS defines an educational organization very narrowly. It must be an education-based 501(c)3 nonprofit with a permanent building and full-time faculty. If the institution is run by a parent company -- a church, for example -- the school might be eligible to recover its telephone excise tax, but the church proper likely would not.
Depending upon the state of incorporation, a nonprofit may have to fill out multiple forms to recoup the money it spent in taxes. Each state that offers excise tax exemptions on state taxes requires its own separate form, as does the federal government. It is crucial that any attempt to recoup taxes from either the state or federal government be performed by the nonprofit's accountant. Misfiling can jeopardize and organization's tax-exempt status.