Section Library
State Taxes
Income Tax
Most states recognize an organization's federal tax-exempt status. Some states do not have any reporting requirements similar to federal Form 990, however, some states do. Usually, most states require organizations that have unrelated business income to file some type of income tax between (usually a corporation income tax return). Each section should contact the applicable state revenue department for guidance on filing requirements.
Fund Raising and Solicitation
Some states do have fund raising and solicitation laws which may require registration and filing in regard to such activities. If a section plans to conduct fund raising events, have a paid fundraiser, or engage in similar activities, the section should determine if state or local registration of filing requirements apply.
Sales, Use and Other State and Local Taxes
Many organizations which are exempt from federal income taxes under IRS Section 501(c)(3) may obtain an exemption for state and local sales tax. Such an exemption applies to the purchases of the organization. In most instances, the organization will still be responsible for collection and remittance of state and local sales tax on its sale of merchandise.
Usually, an organization must file a formal request for exemption from state and local sales and use taxes. Usually, state and local governments apply independent criteria to determine if an organization is exempt from sales taxes. Accordingly, the fact that a section is exempt from federal income tax under IRS Section 501(c)(3) is not an indication that it may obtain an exemption from state and local sales taxes.
Exemption from Real Estate Taxes
Certain organizations may also obtain exemptions from state and local real and personal property taxes. A formal request of exemption is usually required.
State Unemployment Tax
Sections may be required to pay state unemployment tax for their employees. The laws requiring coverage for nonprofit organizations vary on a state-by-state basis. Most state unemployment laws don't define the term employee. However, the majority of states apply the "ABC" test to determine a worker's status. Under the "ABC" test, services are excluded from coverage only if all three of the following conditions are met:
- The worker is free from control or direction in the performance of work under the contract of service.
- Service is performed either outside the usual course of the business for which it is performed, or it is performed outside of all places of business of the enterprise for which it is performed.
- The individual is customarily engaged in an independent trade, occupation, profession, or business.
A few states have simplified the test further by using any two of the three conditions. For information regarding unemployment tax regulations for your state, please contact the Chief Financial Office at AWWA headquarters.
Federal Unemployment Tax (FUTA)
Sections are not required to pay this excise tax due to their classification as 501(c)3 organizations.
State Withholding
Most states require withholding for state income tax. If you would like a copy of your state's withholding tables, please contact the Chief Financial Officer at AWWA headquarters. If you require additional information regarding your state's requirements, please contact the Department of Revenue in your respective state.