Sales and Use Tax

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by Gina DeConcini, managing director at KPMG

Organizations that qualify as tax-exempt charitable entities under Section 501(c)(3) of the Internal Revenue Code for income tax purposes must still apply separately for exempt status in Minnesota from property and/or sales tax. This exemption request can be denied (or revoked) if the organization does not also operate as a “purely public charity” under Minnesota law.

Minnesota Statute §297A.70(4)(a)(1) exempts certain sales to nonprofit organizations that are organized and operated “exclusively for charitable purposes” if the purchased items are used in the performance of the charitable function. The Minnesota Department of Revenue considers the tests for determining whether an organization qualifies for the sales tax exemption to be identical to the tests for determining property tax exemption for “purely public charities.”

This exemption allows purchases on office supplies, furniture, vehicles, computer equipment and other taxed items to be purchased without paying a sales tax. To apply for sales tax exemption, organizations must complete and submit Form ST16 — Application for Certificate of Exempt Status to the Minnesota Department of Revenue.

For sales and use tax, the Minnesota Department of Revenue Sales and Use Tax Division makes the initial exemption decision. Organizations that are notified that their sales tax exempt status will be revoked are entitled to administratively appeal the decision with the Minnesota Department of Revenue. A request for a hearing should be filed with the Department of Revenue within 60 days of receipt of the Notice of Revocation. Details regarding the form and contact information to be included in the request for hearing are included in the Notice of Revocation. Nonprofit entities should be prepared to summarize the grounds for their appeal within the request for hearing. Entities who are denied exempt status may also challenge the decision in either tax court or civil court.

LegalCORPS, with the assistance of the Minnesota Council of Nonprofits, is offering brief telephone advice by pro bono attorneys to nonprofits who are concerned about their property and/or sales tax exemption.

Proof of tax exemption is required when making an approved tax exempt purchase. Exempt organizations must provide a completed and signed copy of Minnesota Department of Revenue Form ST3 – Certificate of Exemption to the seller.

Organizations who sell taxable items (such as publications, jewelry, etc), must additionally collect sales and use tax and file these taxes with the Minnesota Department of Revenue. For more information about collection and remittance of sales and use tax, please visit the Minnesota Department of Revenue Sales and Use Tax Division for more information.