North Carolina Sales and Use Tax Reimbursement for Nonprofits - Reminder and Update

Most North Carolina nonprofits understand the procedures to request semiannually a refund of sales and use taxes paid on purchases of property and services to be used in carrying out their work. But did you know that nonprofits also may seek refunds of sales and use taxes when reimbursing volunteers for purchases of products and services used by the organization? This change, adopted in 2013, is widely overlooked. Don’t short-change your nonprofit!

As a reminder, all sales and use tax reimbursement requests must be in writing and submitted to the North Carolina Department of Revenue using Form E-585. For sales and use taxes paid during the first six months of the calendar year, the refund request must be filed by October 15 of that year. Refund requests for taxes paid in the last six months of the calendar year must be filed by April 15 of the following year. While nonprofits are not required to submit receipts reflecting their purchases to the Department of Revenue, they must maintain the relevant records for up to six months, at which point the Department will have paid, amended, or denied the refund, or remained silent, which is treated as a denial.

Keep in mind, sales and use tax refunds for nonprofits are being closely scrutinized by the North Carolina General Assembly. The Senate recently proposed changes to the state tax code that would impose two significant and detrimental limitations on the sales and use tax reimbursement provision. First, rather than allowing nonprofits to have their sales and use tax payments reimbursed semiannually, the proposed legislation would implement an annual refund process. This would allow the state to keep the sales and use taxes paid by nonprofits for a longer period of time, potentially harming organizations’ cash flow. Second, the proposal contemplates a material reduction in the cap on potential reimbursement that would take place over a period of several years, ultimately shrinking the refund cap from the current $45,000,000 to $1,000,000 per fiscal year by 2020. The North Carolina Center for Nonprofits, together with other individuals and groups, is closely monitoring this and related legislation.