- Sales and Use Tax (Board of Equalization)
- Property Tax (Board of Equalization)
- State Payroll Tax (Employment Development Department)
- State Income Tax (Franchise Tax Board)
- Federal Income and Payroll Tax (Internal Revenue Service)
Sales and Use Tax (Board of Equalization)
Nonprofit or exempt organizations do not have a blanket exemption from sales and use taxes.
Some sales and purchases are exempt from sales and use taxes. Examples of exempt sales include, but are not limited to, sales of certain food products for human consumption, sales to the U.S. Government, sales of prescription medicines and certain vehicle and vessel transfers. For more information on exempt sales, please read Publication 61, Sales and Use Taxes: Exemptions and Exclusions. For information on vehicle and vessel exemptions, see Publication 52, Vehicles and Vessels: How to Request an Exemption from California Use Tax.
There are special exemptions in the Sales and Use Tax Law for certain types of charitable organizations. For information on which charitable organizations qualify for exemptions read Publication 18, Tax Tips for Nonprofit Organizations.
State Property Tax (Board of Equalization)
Real and personal property owned and operated by certain nonprofit organizations can be exempted from local property taxation through a program jointly administered by the Board of Equalization and county assessors' offices in California. This exemption, known as the Welfare Exemption, is available to qualifying organizations that have income- tax- exempt status under Internal Revenue Code section 501(c)(3) or 23701(d) of the Revenue and Taxation Code and are organized and operated exclusively for religious, charitable, scientific or hospital purposes.
For more information on the Welfare Exemption, please view the Board's website at Welfare and Veterans' Organization Exemptions, or refer to Publication 48, Property Tax Exemptions for Religious Organizations, and Assessors' Handbook Section 267, Welfare, Church and Religious Exemptions. Individual copies may be ordered by downloading the Publications Order and Purchase Order for Assessors' Handbook Sections.
State Payroll Taxes (Employment Development Department)
Most nonprofit organizations* are subject to Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI)** and Personal Income Tax (PIT) withholding.
However, nonprofit entities that have an exemption under Section 501(c)(3) of the Internal Revenue Code (IRC) have a choice in the method of financing their UI costs. A nonprofit entity can elect to either:
- Pay the same UI taxes as those paid by commercial employers (experience rating method).
- Reimburse the Employment Development Department (EDD) for the full cost of all UI benefits paid to their former employees (reimbursable or cost-of benefits-paid method).
To elect the reimbursable method, a nonprofit employer must file a DE 1SNP, Selection of Financing Method By a Nonprofit Organization, as well as a DE 1NP, Registration Form for Nonprofit Employers, when registering. If the DE 1SNP is filed at a later date, it will be effective the first day of the quarter in which it is filed.
*Special Exclusions: Certain types of employees who work for religious, charitable, educational and other nonprofit organizations described in Section 501(c)(3) IRC are excluded from UI, ETT and SDI**. Except for certain religious workers, wages received by these employees are subject to PIT withholding and PIT wage reporting. These may include:
- Employees of a church or convention or association of
churches or organization
operated primarily for religious purposes. - Duly ordained, commissioned or licensed ministers in the exercise of their ministry and members of religious orders. May also be excluded from PIT withholding.
- Persons receiving work-relief or work-training in a program financed by any government agency.
- Inmates of a custodial or penal institution.
Government entities (states, counties, cities, districts, public agencies and authorities, school districts and community colleges) may elect the experience rating or reimbursable method of financing UI and must withhold PIT. Government entities are not subject to SDI** but may elect it under certain circumstances.
Special exclusions: Some employees of public entities are excluded from UI and SDI** coverage. These include:
- Elected officials (not considered employees).
- Members of legislative bodies or the judiciary.
- Members of the State National Guard or Air National Guard
except those who provide services
as regular State employees.
Nonprofit and government entities may elect
UI and/or SDI** coverage for exempt employees under certain
circumstances. For more information, call EDD's toll-free
number (888) 745-3886 or visit
your nearest
Employment Tax Office.
** Includes Paid Family Leave
California Income Tax (Franchise Tax Board)
A "tax-exempt" entity is a corporation, unincorporated association, or trust that has applied for and received a determination letter from the Franchise Tax Board stating it is exempt from California franchise and income tax. (California Revenue and Taxation Code Section 23701)
Although most California laws dealing with tax exemption are patterned after the Internal Revenue Code, obtaining state exemption is a separate process from obtaining federal exemption. Even if you have obtained federal exemption for your organization, you must submit an Exempt Application form (FTB 3500) to the Franchise Tax Board to obtain state tax exemption. You may apply for state tax exemption prior to obtaining federal tax-exempt status.
For more FTB information, refer to FTB Publication 927, Overview of Exempt Organizations.
Federal Income and Payroll Tax (Internal Revenue Service)
IRS Publication 557, Tax-Exempt Status for Your Organization, discusses the rules and procedures for organizations that seek to obtain recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (IRC). It explains the procedures you must follow to obtain an appropriate ruling or determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. To qualify for exemption under the IRC, your organization must be organized for one or more of the purposes designated in the IRC. Organizations that are exempt under section 501(a) of the IRC include those organizations described in section 501(c). Section 501(c) organizations are covered in IRS Publication 557.