Wednesday, May 11, 2016

Reminder on Tax Exemption Available for Alabama Churches and Noprofits

Alabama is one of only a handful of states that imposes its sales and use taxes on churches.  It also imposes sales and use taxes on most nonprofit entities.  In addition, it imposes utility and mobile telecommunications taxes on churches and nonprofit entities.  Ironically, it does exempt churches from income and ad valorem property taxes, but no express exemption exists from sales, use, utility, or mobile telecommunications taxes.

We can argue about whether it is proper to impose taxes on such charitable organizations, many of which are serving to relieve some of the burdens of state and local governments to provide services to those less fortunate. Argument can be made that all Alabama churches should be exempt, as are churches in most states, from all state and local taxes. A few brave souls would argue that churches should not be exempt from tax at all.  Regardless of your position, Alabama made the choice long ago not to provide such a general exemption from several of its taxes for Alabama churches and most of its nonprofit entities.

There is, however, at least one option by which Alabama churches and nonprofit entities can obtain exemption from state and local sales, use, utility, and mobile telecommunications taxes and save significant money to use in their charitable works.

Alabama churches and nonprofit entities have the option of forming a united appeal fund, which can not only bolster the organization's benevolent work, but also allow it to become exempt from all Alabama taxes, including sales, use, utility, and mobile telecommunications taxes.  This can result in a substantial savings to the overall annual budget of the organization (almost immediately if a building or renovation project is to be undertaken soon or other large dollar purchase is about to take place), especially when you consider that combined sales and use tax rates are at or above 10% in some jurisdictions in Alabama.  For more information on the united appeal fund process, call us or click here.

Two separate Alabama Department of Revenue Administrative Law Division cases have upheld the use of a united appeal fund structure in this manner previously and many churches and charities across Alabama have chosen to establish united appeal funds to benefit their activities.

While united appeal funds are not for every church or charity, at least some churches and charities do have an option to obtain exemption under Alabama law.

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