Nonprofits And Other Qualifying Organizations
The Comptroller’s Office issues sales and use tax exemption certificates to certain qualifying organizations, entitling them to make specific purchases without paying sales and use tax and is renewed every five years.
The following organizations can qualify for exemption certificates:
- Nonprofit charitable, educational and religious organizations
- Volunteer fire companies and rescue squads
- Nonprofit cemetery companies
- Government agencies
Certificates issued to nonprofit religious, educational, and charitable organizations, nonprofit cemeteries, credit unions, qualifying veterans organizations and volunteer fire companies or rescue squads are printed on white paper with blue ink and contain an expiration date of September 30, 2022. Certificates issued to governmental entities are printed on white paper with red ink and contain no expiration date.
An organization may use its exemption certificate to purchase tangible personal property that will be used in carrying on its work. This includes office supplies and equipment and supplies used in fundraising activities, but does not include items used to conduct an “unrelated trade or business” as defined by Section 513 of the U.S. Internal Revenue Code.
An exemption certificate should not be confused with a , which is used by manufacturers, wholesalers and retailers to purchase, free of tax, the items they sell.
Sales And Use Tax Exemptions
In Maryland, there are certain goods that are tax-exempt from sales and use taxes, including:
- Machinery and equipment: Any machinery or equipment that will be used as part of production activities is exempt from Maryland sales and use taxes.
- Agriculture/aquaculture: Farm equipment is also exempt from sales and use taxes in Maryland, even if it is attached to real property.
- Repair labor: Any restoration of used property is non-taxable, although fabrication and the purchase of over-the-counter parts are subject to Maryland sales and use taxes.
In addition, the Comptrollers Office issues sales and use tax exemption certificates to certain qualifying organizations, including:
- Nonprofit organizations
- Volunteer fire companies and rescue squads
- Certain veterans organizations
- Government agencies
There are certain nuances that apply to all these sales and use tax exemption certificates, so youll want to work with a knowledgeable tax attorney when completing and filing your annual business taxes.
Resale And Incorporation Exclusions
Vendors may not recognize the resale and incorporation exclusions unless you provide them with a resale certificate with a signed statement that the purchases are for resale and including the buyer’s name, address and Maryland sales and use tax registration number. For more information on the use of resale certificates, contact Taxpayer Service and request Business Tax Tip #4, If you Make Purchases for Resale.
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Filing When There Are No Sales
Once you have a Maryland seller’s permit, youre required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a “zero return via phone.
Failure to submit a zero return can result in penalties and interest charges.
Who Is Responsible For Collecting And Filing Sales And Use Taxes
The vendor must collect and file sales tax. A vendor is a person in the retail business, who sells finished goods to consumers. Anyone who sells taxable services to consumers must also collect and file sales tax.
Read the Law: Md. Code, Tax-General § 11-701
A vendor includes entities defined in the law as marketplace facilitators. To illustrate what a marketplace facilitator is, consider Amazon. Many goods sold on Amazon.com are not sold by Amazon, but by third party sellers. Amazon handles payment and delivery of the product. Maryland law requires marketplace facilitators to collect sales tax at the time of purchase.
Use tax must be filed by any consumer who makes a tax-free purchase in another state.
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How Do I Apply For State Income Tax Exemption
Submit these documents to the Legal Department of the Revenue Administration Division:
- A request for exemption from Maryland income tax
- An explanation of the nature, purpose, and scope of your non-profit organization in Maryland
- A copy of your non-profits IRS tax determination letter
- A copy of your non-profits bylaws
- A copy of the latest financial statement of your non-profit organization
Failure To Collect Maryland Sales Tax
If you meet the criteria for collecting sales tax and choose not to, youll be held responsible for the tax due, plus applicable penalties and interest.
Its extremely important to set up tax collection at the point of sale its near impossible to collect sales tax from customers after a transaction is complete.
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Is There A Global Exemption Certificate That Can Be Used In Multiple States
No, unfortunately there are no global rules regarding exemption certificates. Each state has its own set of exemption certificates as well as rules and regulations covering their use.However, some general rules do apply. For example, most states have broad categories of exemptions resale, government, manufacturing, exempt organizations, telecommunications, agricultural, etc. Since not every state has every exemption in place, local rules and local compliance requirements must be considered.
Diplomatic Sales Tax Exemption Cards
The Departments Office of Foreign Missions issues diplomatic tax exemption cards to eligible foreign missions and their accredited members and dependents on the basis of international law and reciprocity. These cards facilitate the United States in honoring its host country obligations under the Vienna Convention on Diplomatic Relations , Vienna Convention on Consular Relations , and other treaties to provide relief from certain taxes.
The cards provide point-of-sale exemption from sales tax and other similarly imposed taxes throughout the United States. At the time of payment when making a purchase, the cardholder must present the card to the vendor in person. The vendor may verify the cards validity online or by calling OFM during business hours. The vendor should retain a copy of the front and back of the card for accounting and reporting purposes.
Types of Sales Tax Exemption Cards
Mission Tax Exemption Cards
Diplomatic tax exemption cards that are labeled as Mission Tax Exemption Official Purchases Only are used by foreign missions to obtain exemption from sales and other similarly imposed taxes on purchases in the United States that are necessary for the missions operations and functions. All purchases must be paid for with a check, credit card, or wire transfer transaction in the name of the foreign mission.
Personal Tax Exemption Cards
Other personnel may also be eligible to apply for a card if they qualify based on a treaty other than the VCDR or VCCR.
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State Tax Exemption Rules And Regulations
Through the Department of States Diplomatic Tax Exemption Program, the U.S. Government meets its obligations under Article 34 of the Vienna Convention on Diplomatic Relations and Article 49 of the Vienna Convention on Consular Relations, as well as other similar treaties and agreements, to provide exemption from state and local sales, restaurant, lodging/occupancy and other similar taxes charged to customers.
Generally, states, territories, the District of Columbia and localities develop their own statutes, and regulations concerning the manner in which vendors may grant such tax exemptions to foreign missions and their members.
The information below is provided to better assist vendors with understanding the applicable state and local rules and regulations concerning this issue. This listing is not exhaustive of all such statutes/regulations. Therefore, if a vendor does not find information specific to their location, they are encouraged to contact the Department of States Office of Foreign Missions or the appropriate tax authority. OFMs Headquarters, located in Washington, DC, can be reached 8:00am to 5:00pm by telephone at 895-3500, option 2 or by electronic mail at .
How To Use Sales Tax Exemption Certificates In Maryland
A sales tax exemption certificate is a form you can fill out yourself certifying that you meet the qualifications outlined for making sales-tax-free purchases. You will need to present this certificate to the vendor from whom you are making the exempt purchase – it is up to the vendor to verify that you are indeed qualified to make a tax-exempt purchase.
The state of Maryland provides certain forms to be used when you wish to purchase tax-exempt items such as prescription medicines.The “Maryland Sales and Use Tax Horse Breeding Exemption Certificate” should be utilized by a farmer in the business of breeding horses to purchase items for use in this field.The “Suggested Blanket Resale Certificate” is meant to purchase items that are either intended for resale, or will be used as an ingredient or part of any tangible product intended for sale.These documents can be downloaded on this page. To apply the certificate, the buyer must first present the seller with their written certificate, which legally documents the exemption. The certificate should include the date it was created, the signature of the buyer or an employee or agent who signed on behalf of the buyer, both the seller’s and buyer’s addresses and names, the legal basis of the exemption being utilized, the buyer’s tax registration or business license number, and a description of the merchandise that the buyer wishes to purchase.
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Acceptance Of Uniform Sales Tax Certificates In Maryland
Maryland is a member of the Streamlined Sales and Use Tax Agreement, an interstate consortium with the goal of making compliance with sales taxes as simple as possible in member states.
Because Maryland is a member of this agreement, buyers can usethe Multistate Tax Commission Uniform Sales Tax Certificate when making qualifying sales-tax-exempt purchases from vendors in Maryland.
The following guidelines are provided for the use of the MTC Uniform Sales Tax Certificate in Maryland:
This certificate is not valid as an exemption certificate. However, vendors may accept resale certificates that bear the exemption number issued to a religious organization. Exemption certifications issued to religious organizations consist of 8 digits, the first two of which are always â29â. Maryland registration, exemption and direct pay numbers may be verified on the website of the Comptroller of the Treasury at www.marylandtaxes.com.
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How To Claim The Maryland Sales Tax Exemption For Software
Since the Comptroller of Maryland does not provide aspecific exemption certificate for custom software programs or electronicallydelivered software on their website, any Maryland business making a qualifyingexempt software purchase can submit a letter to their vendors that includes thefollowing information:
- Name and address of the taxpayer
- The general character of the personal propertysold, distributed, leased, or stored, or to be sold
- Statutory reason that the personal propertysold, distributed, leased, or stored, or to be sold is exempt from sales tax
- Signature and Title from an authorizedrepresentative of the taxpayer stating that I certify that I am authorized tosign this Certificate of Exemption and that, to the best of my knowledge andbelief, it is true and correct, made in good faith, pursuant to the provisionslisted in the Annotated Code of Maryland
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Taxable And Exempt Shipping Charges
There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Maryland and sales tax should be taken directly to a tax professional familiar with Maryland tax laws.
For additional information on Maryland sales and use tax on shipping and handling charges, see the Sales and Use Tax FAQ.
Nonprofit Alert: Renewing Your Maryland Sales And Use Tax Exemption Certificate
The following SC& H Group blog post discusses the upcoming deadline, requirements, and considerations for renewing Maryland sales and use tax exemption certificates, allowing qualifying organizations to continue benefiting from significant tax savings.
Every five years, nonprofit organizations must renew their sales and use tax exemption certificates, which allow qualifying organizations to purchase tangible personal property without paying sales and use tax.
Such is the case for all nonprofit organizations holding a valid certificate with a September 30, 2017 expiration date. In late May, these organizations should have received a notice of the upcoming renewal period from the Comptrollers Office.
To renew exemption certificates, organizations must complete an application online or via mail by August 1, 2017.
Understanding Key Requirements of Certificate Renewal
Before completing the renewal application, organizations should gather the following information:
- Federal Employer Identification Number
- IRS nonprofit classification
When completing the application, an organization must acknowledge its exempt status and indicate any changes that would affect this status. If the organization has changed its name, it must upload a copy of the amended articles of incorporation. Also, it must submit IRS documentation if there has been a change in the FEIN. The application must be signed by an officer of the organization.
Other Considerations when Completing the Application
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What Do Sales And Use Taxes Apply To
Goods – All goods are subject to sales and use tax. This includes food, clothing, jewelry, vehicles, furniture, and art. However, there are exceptions, including:
- Agricultural Products Items sold/bought are not taxed if they are bought by a farmer and are being used for an agricultural purpose. Read the Law: Md. Code, Tax-General § 11-201
- Food Sales Food items that are sold by a substantial grocery or market business for consumption off the premises are not considered taxable prepared food. However, food items that are prepared for consumption on the grocers premises or are packaged for carry out are considered prepared food and are subject to a 6% sales tax. Read the Law: Md. Code, Tax-General § 11-206
- There are additional exemptions. Read the Law: Md. Code, Tax-General Title 11, Subtitle 2
Services – Only services listed in the law are subject to sales and use taxes in Maryland. These services include, but are not limited to:
- Manufacturing or producing personal property
- Transportation of electricity or natural gas
- Commercial cleaning and janitorial services
- Certain telecommunications services
Rates – Maryland taxes various goods and services at different rates. A 6% tax rate applies to most goods and services. However, vehicle rentals and the sale of alcoholic beverages are taxed at different rates.
What You Should Know About Sales And Use Tax Exemption Certificates
Some of the most frequently asked questions from clients concerns securing exemption certificates from qualifying customers. Each business owner should be concerned about exemption certificates and understand when and why they should obtain them so they can minimize sales tax exposure should the business be audited.
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When You Need To Collect Maryland Sales Tax
In Maryland, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.
To help you determine whether you need to collect sales tax in Maryland, start by answering these three questions:
If the answer to all three questions is yes, youre required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.
Food Preparation By Restaurants And Food Retailers
Generally, food processed for sale by grocery stores, bakeries and other food retailers does not qualify for exemption. However, there is a specific exemption for the sale of equipment to be used by a retail food vendor to manufacture or process bread or bakery goods for resale. To qualify for the exemption, the vendor must operate a substantial grocery or market business of the Tax-General Article) at the same location where the food is sold. The taxable price of each piece of exempt equipment must be at least $2,000.
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Who Is Exempt From Sales And Use Taxes
Sales to an exempt organization – When selling to certain organizations, vendors do not have to collect sales tax. Exempt organizations include cemetery companies credit unions veterans groups volunteer fire, ambulance, and rescue companies and various non-profit organizations located in Maryland. Before making a purchase, an exempt organization must give the vendor an exemption certificate. An organization must apply to the Comptroller of Maryland to obtain an exemption certificate.
Read the Law: Md. Code, Tax-General § 11-408
Sales by an exempt organization – Generally, even an exempt organization must collect and file sales tax when it sells goods. However, there are certain exemptions, including:
- Sales made by a church or religious organization, when those sales are made for the general purposes of the organization
- Sales of magazine subscriptions by an elementary or secondary school located in the state of Maryland. Those sales must be made by students. Proceeds must be used for educational benefits for the school or students
- Sales of food to support nationally organized and recognized veterans of the armed forces of the United States. Organization members must serve the food, and the food must be consumed on premises and
- Sales of food to support a volunteer fire department, company, or rescue squad. The department, company, or squad must serve the food.
- For more exemptions, read Code of Md. Regulations 03.06.01.22.
Read the Law: Md. Code, Tax-General § 11-209
How To Recover Maryland Sales Taxes Already Paid
Maryland businesses that have already made a purchase of software which meets the exemption criteria listed above are entitled to refunds for purchases that were made within four years from the date the tax was paid. There are two options available to Maryland purchasers to recover any sales tax overpayments on software. The first is to reach out to the original seller and request that they issue a refund or credit. The seller can accomplish this by amending their Maryland sales & use tax return from the period in which the original sale was billed. If the seller declines to issue the purchaser a refund or credit directly by amending their sales & use tax returns, then Maryland purchasers can file a claim for refund directly with the Comptroller of Maryland by completing and submitting . This SUT205 Sales and Use Tax Refund Applicationalso allows purchasers to claim a refund with the Comptroller of Maryland for any self-assessed taxes that the purchaser realizes were incorrect at the time. The consultants at Agile Consulting Group have experience in recovering overpaid sales taxes from both sellers and the Comptroller of Maryland and can assist any Maryland business with this cumbersome process.
As with all sales and use tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Groups sales tax consulting team can be found on our page summarizing .
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