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New Indiana Sales Tax Rules for Nonprofits and Churches Go Into Effect on July 1

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Indiana is changing the circumstances under which nonprofit organizations, including churches, are exempt from collecting sales tax. The new rules are effective July 1, 2022.

Through June 30, 2022, sales by nonprofit organizations carried on for 30 or fewer days in a calendar year and engaged in as a fundraising activity are exempt from sales tax.

As of July 1, 2022, sales of no more than $20,000 in a calendar year engaged in as a fundraising activity are exempt from sales tax. Once a nonprofit organization passes the $20,000 threshold, it must collect state gross retail tax on subsequent sales for the remainder of the calendar year.

As with the prior rule, the $20,000 threshold applies to each calendar year. Therefore, sales counted toward the $20,000 threshold reset on January 1 every year. Consequently, a nonprofit organization or church may be required to collect sales tax in one year (because it exceeds the $20,000 threshold in that year), but may not be required to collect sales tax in the next year.

For the 2022 calendar year, organizations should use the 30 days rule through June 30 and the $20,000 rule as of July 1. In its Information Bulletin about the change, the Indiana Department of Revenue notes that:

… a nonprofit that has over 30 selling days before July 1 will be required to collect sales tax throughout the entire year, even if they do not reach $20,000 in sales after July 1. Conversely, a nonprofit that has reached $20,000 in sales for the year any time before July 1 will not count those sales towards determining whether they should collect sales tax. Only the sales made after June 30 should be counted.

This new rule does not change the long-standing exemption from sales tax for sales of periodicals, books, or other property that are intended primarily to further the educational, cultural, or religious purposes of the organization or for the improvement of the work skills or professional qualifications of the organization’s members, and where the sales are not used in carrying out a private or proprietary business. Thus, for example, sales of religious materials in a church bookstore remain exempt from sales tax as they were before.

Please contact us with any questions about how this may affect your organization.

2 Comments

  • Richard Bailey says:

    Please inform me of the origin of this rule change. Was it attached to State budget? Was it included in its own bill that passed through legislature? Or was it simply a change directed by Indiana Department of Revenue?

    Also, what was the rationale for placing this tax on non-profits?

    • Ted Batson Ted Batson says:

      Richard,

      This change in Indiana law was contained in Indiana Senate Bill 382, Section 31 (http://iga.in.gov/legislative/2022/bills/senate/382#document-dcfc6e18) enacted in the 2022 session of the Indiana General Assembly and signed into law on March 15, 2022 by Governor Holcomb.

      It is actually considered a positive change for nonprofits in Indiana law. Prior to this change a nonprofit organization, including a church, that engaged in the sales of items for more than 30 nonconsecutive days during the year was required to register and collect and remit sales tax on the items it sold. Thus a church that had sales every Sunday of the year of goods that did not meet the exception for property sold that is designed and intended primarily for the church’s religious purposes would be required to collect sales tax on those sales, even though they were of nominal value. This new rule removes the number of days of sales rule in favor of a relatively high dollar sales threshold. So if an church or other nonprofit organization is selling goods that don’t qualify for another exception to sales tax, those sales must now exceed $20,000 per year before the organization will be required to collect and remit sales tax.

      This change is not a tax on nonprofits; it does not require nonprofit organizations, including churches, to pay sales tax where they were previously exempt. Rather, it changes the rule that governs when nonprofits are required to collect sales tax from those to whom they sell items.

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