Indiana Department of Revenue Issues Changes to Nonprofit Income and Sales Tax Filing Requirements

Recently, the Indiana Department of Revenue rolled out changes that will affect nonprofit organizations throughout the state. These changes were released through Information Bulletin #17 and Information Bulletin #10.  We are providing a summary of these 2 information bulletins and how they may impact your organization.  We anticipate these changes will generate a lot of discussion and questions in the Indiana nonprofit community.  If you have any questions, please consult your Greenwalt CPAs advisor.

Information Bulletin #17 – Taxation & filing requirements for NFP Organizations

This release pertains to Indiana tax filing requirements and marks a significant change for how nonprofit organizations file in the state of Indiana.  Organizations with a calendar 2021 year-end or a fiscal year ending in 2022, will file the annual Form NP-20, as you have done every prior year, but this will be the LAST time you will file this form.  Starting in 2024, the new filing requirements will begin. 

The Form NP-20 will be replaced with a new Form NP-20R. Unlike the annual filing requirement of Form NP-20, the NP-20R will be filed every five years.  The Indiana Department of Revenue is staggering when organizations can start filing the Form NP-20R.  The year of an organization’s initial filing of Form NP-20R will be determined by the organization’s EIN. The last two digits of your organization’s EIN will determine your first NP-20R filing and are as follows:

• EIN ending in 00 through 24 will need to first file NP-20R by May 15, 2024
• EIN ending in 25 through 49 will need to first file NP-20R by May 15, 2025
• EIN ending in 50 through 74 will need to first file NP-20R by May 15, 2026
• EIN ending in 75 through 99 will need to first file NP-20R by May 15, 2027

Once you file your first NP-20R, you will then be required to file every five years going forward. There is no filing requirement for either the NP-20 or NP-20R calendar year 2022 filers or fiscal years filers with year-end dates in 2023.  Once this year off from filing is finished, the new filing requirement begin.   

Not everything is known about this new filing requirement.  For example, the new Form NP-20R does not yet exist, even in draft form.  The state will release the draft and final form versions, along with additional filing information about the new requirements between now and 2024.  The state has informed that the new Form NP-20R will be required to be filed electronically, but whether this must be done through the state’s online INTIME system or if tax return preparers can electronically file though their tax software provider (as we can for Form 990) is yet to be announced. 

Note: If your organization has unrelated business taxable income, you will still be required to file form IT-20NP annually, with no interruption.  This bulletin only pertains to nonprofit tax filings in the state of Indiana.  Your organization’s annual federal filing requirements with the IRS are not affected by the state’s change.

Information Bulletin #10 – Sales taxes for NFP Organizations

This release is regarding sales taxes charged on sales made by nonprofit organizations. This change does NOT cover the sales tax exemption on purchases made by nonprofit organizations, your sales tax exemption certificate still allows to you claim your sales tax exemption on purchases.  This bulletin only pertains to the taxability of the sale of tangible personal property by tax-exempt organizations.  The effective date of this change is July 1, 2022.  All sales on June 30, 2022 and previous will be under the old sale tax rules.

Under the old rules, a nonprofit organization, which was engaged in selling of tangible goods to raise funds for the furthering their organization’s exempt purpose, was allowed to sell those goods for 30 non-consecutive days in a year before they were required to collect and remit Indiana sales tax.

The new law, as explained in Information Bulletin #10, says that sales of tangible personal property by a nonprofit organization that exceeds $20,000 is subject to Indiana sale tax. With the new sales dollar exemption threshold, organizations will be required to collect and remit Indiana sales tax on total sales of tangible goods over $20,000, with the first $20,000 of sales being exempt from sales tax.

With the effective date of this new legislation taking place in the middle of the year, we anticipate there will be some complexities in the first-year application of this rule.  The state did include some guidance in the bulletin to address some of these issues, along with providing some examples.

From the bulletin:

For the 2022 calendar year, a nonprofit is subject to the 30-day rule through June 30, and beginning July 1, the $20,000 rule.  However, even though the $20,000 rule becomes effective July 1, a nonprofit that has over 30 selling days before July 1 will be required to collect and remit sales tax on all sales for 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.  For the 2023 calendar year, only the $20,000 rule will apply.

Example: From January to June, a nonprofit has 20 selling days including a major event in June, where it sells $100,000 of souvenirs. Because it has not surpassed 30 selling days, and the $100,000 in sales occurred before July 1, it has no obligation to collect sales tax, as it is still under the thresholds for the 30-day rule. Further, if the nonprofit only makes $15,000 in sales from July 1 to the end of the year, then it still has no obligation to collect sales tax because it is under the $20,000 threshold, as the $100,000 in sales at the June event do not count towards the threshold. This is true even if they had 11 more selling days after June 30, as the nonprofit stops counting selling days after June 30, 2022 when the rule expires.

Example: Like the nonprofit above, another nonprofit has 20 selling days from January to June. However, this nonprofit’s major event is in August, where it sells $100,000 of souvenirs. This nonprofit would be required to begin collecting sales tax after this event in August, because it hit the new threshold after July 1, 2022. It would not be responsible for any tax for any sales made during or prior to the event.