I made some calls today, and found out some good news.
- I called the Michigan Department of Treasury's Sales, Use, and Withholding
Taxes Division and told them that we had been approved as a 501(c)3
organization. They told me we can make the following changes:
- As long as we do not sell more than $5,000 worth of merchandise, we need
not collect sales tax on what we sell. (However, if we do sell more
than $5,000 worth of stuff, we will owe sales tax on everything we
sell, including the first $5,000. So we need to be careful. We have
never come close to selling $5,000 worth of stuff, but the auctions
count as sales for this purpose, so we are within an order of magnitude.
Last year, for example, we sold $485 worth of merchandise and made
$1414.01 in auction proceeds, so we were 38% of the way to the $5000
limit.)
- The lady I talked with will send us a Sales Tax Exemption form.
Whenever we buy something that would normally incur sales tax, we
can present the seller with a copy of the exemption and of our
letter from the IRS, stating that we are 501(c)3, and then we need
not pay the sales tax. However: the payment for items needs to come
directly from Cyberspace Communications for us to be able to avoid
taxes this way. We can't do what has been the norm in the past:
have some staff member make a purchase and then be reimbursed later
by the treasurer. Well, we *can*, but it will save us money not to.
- I called Ameritech, and they are sending us forms to fill out so that we
will no longer have to pay state and federal tax on our telephone
charges.
49 responses total.
Wow--an exemption from taxes on the phone bill is an unexpected benefit!
Thanks for looking into this Mark!! Wow, I do believe you folks have just raised Grexes "real income" -- as in expendable cash -- significantly!
What is the magnitude of the phone taxes, in terms of local dial-ins that we could retain? has this just made the discussion of three fewer lines moot?
STate and federal taxes on phone charges add up to 9%. That is 3 or 4 memberships per month worth of reduced expense. Mark will be able to compute the exact amount. It's a lot, for us.
Same on the electric bill.
Unfortunately we do not pay our electric bill directly, rather we reimburse our landlord. So we cannot get a tax break there unless we change that system. I called Detroit Edison to ask for our monthy average, and found (not surprisingly) that the Pumpkin shares a meter with someone else. (I concluded that based on the fact that the monthly average was a lot higher than what we use.) I don't know what it would take to get the Pumpkin on its own meter, but I suspect it's more trouble than it's worth. Our last phone bill contained $31.86 worth of taxes. That's 5 memberships worth!
Hmm. This is one advantage that we (or at least *I*) never forsaw, but which may well be the single biggest benefit of 501(c)3 for Grex. Second on what Misti said, Mark. It's a big chunk of our budget.
Credit should go to Ken Ascher for suggesting that we might get out of paying taxes on our phone bill. I wouldn't have thought of it otherwise.
Cool.
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You guys are great! Thanks, mark and Ken, and Jan!
Well, yes, thanks everyone...for pointing out the obvious. Just look at what is not taxable in everything that Grex does - and get recognition of tax exemption for all of it. This has been true from the day the 501(c)3 effort was first considered.
I finally got the tax exemption applications from Ameritech - they took 2.5 weeks to get here, for some reason. There is one to get out of federal tax and one to get out of state tax. My cursory reading of them makes it look like we qualify for the state exemption but not the federal. The federal form requires that we "locate the provision under which exemption is claimed", and the options are: A. Reseller of communication services B. Governmental organization C. Ambassadors, ministers or other diplomatic representatives D. Consular offices whose foreign government have treaties with United States E. Consulates, agencies and commissions of foreign governments F. Schools operated as an activity of a church, parish or other religious body G. Nonprofit educational organization H. Nonprofit hospital I. Common carrier, telephone and telegraph company, radio and television broadcasting stations and networks J. Other reasons The only options that look like they might possibly apply to Grex are G and J. But under G it says, among other things: The exempt organization normally maintains a regular faculty and curriculum, normally has a regularly enrolled body of students, in attendance at the place where its educational activities are regularly carried on, and has as its principal function the providing of formal education. So that's out. Under J (Other), it says Acceptable only if accompanied by a determination letter from Internal Revenue Service explaining the basisi of exemption from Federal Excise Tax on Communication Service (income tax exemption is not applicable). So that makes it pretty clear we can't choose J. Therefore I don't think we qualify for an exemption from federal tax.
Now that I look at the state form a little more carefully, I need to make some calls before filling it out, too. I will post more when I know more.
Reseller of communication services? Or does that make membership donations nondeductible? Probably won't work. I use grex as my only way to do e-mail and read the net.
OK, looks like we are eligible to avoid state taxes. I sent the paperwork in to Ameritech today.
I think we're a "reseller of communication services." Our price is zero for everyone but members.
Except that being a reseller of communications services has some very specific meanings. That basically means that you are selling telephone lines to people, and then buying the lines you are selling from Ameritech. With that goes a ton of regulation, and the exemption for paying taxes to Ameritech is because such resellers can instead pay their phone line taxes directly to the government.
We cannot be a "reseller..." as we are incorporated as a non-profit charitable organization giving away services, which is what we do. We do not sell members anything, as members are just the donors that support grex by their charitable donations. Members don't have to pay for any services. It makes a big difference whether "payment" is voluntary or required.
As long as members get some services that non-members don't (such as outbound telnet), those services are being sold. OTOH, from what scg says we aren't a "reseller of communication services." Oh, well...8-)
You have to restrict language use to that used in tax law. Grex is not a reseller of the services it provides supported by donations, but would be a reseller of T-shirts. most "member services", up to certain limits, are also not defined as being sold.
Got a phone bill today, but they're still charging us taxes. I'd better call them tomorrow and make sure they got our application.
Can we get out of previously paid taxes? I.e., can the exempt status be made retroactive?
That's the big question. They said yes, but there is nothing on the paperwork I sent them which says when our status begins, and I don't know if they'll take my word for it that it's retroactive.
Ameritech has finally set up our account so that we don't pay state taxes. We're still wating on the federal taxes (they've forwarded it to some special division of Ameritech). After that's resolved, we should get a refund on the last two years worth of taxes that we paid.
That month's financial report should look pretty good. :-)
Yup. :)
Woo hoo! We are set. Not only do we not have to pay state taxes from now on, but Ameritech is crediting us $970.27 for the taxes we paid over the past 4 years.
don't start the celebration until the credit is realized..
Wow! Thanks for *all* of your work on this, Mark.
And thank you, once again, to Jan for his work on the 501(c)3.
Very nice job, Mark. Thanks much.
Indeed - Jan and Lucie at Ameritech deserve most of the credit.
Aw, what the heck, give 'em 10%! ;-)
Thanks, Mark & Jan. For our budget this is a big amount. The 501(c)3 application had mostly been going nowhere for years & years, until Jan took it on. It's making a very noticeable difference.
*applause* Encore! Encore!
Hooray!!
How will we top this?
OK, the credit for $970.27 appeared on this month's phone bill, so we won't have to pay anything for May and June, and only a bit for July.
Wow! I'm happy to see it actually happened, given it was Ameritech we were dealing with.
Ameritech told me Kiwanis was not eligible for any retroactive tax refunds, is this correct? Kiwanis has been non-profit for a long time but did not know a tax reduction was possible. Mark, congratulations!
There's several different kinds of non-profit that the local Kiwanis Club could be. Grex gets out of several taxes because of its 501(c)(3) status - which is a relatively rare and hard-to-get status for a local service club.
Yeah, that would be my question - is Kiwanis a 501(c)3 organization? The woman I spoke with at Ameritech arranged for us to get a refund for the last 4 years worth of taxes.
It is not supported by public donations but by sales, so I don't think it can be a 501(c)3 organization also qualifying under 509(a)1 (that's the full charitable publicly supported organization). In particular, it could not meet the 1/3 rule (and the 10% rule would not apply).
Jim says Kiwanis is supported by sales, donations and fund raisers. The sale is one of the fund raisers, and what is sold is donated items. Without the donations there would be no income. We will see what happens. There is a social club supported by membership dues, and a foundation supported by donations. The phones are used by the foundation to help in gathering donations and converting them to cash.
Ask the administer for the tax exempt status of Kiwanis. This is pretty complex stuff, and one must toe the line on lots of aspects of donations, sales, and activities supported thereby.
There are lots of things Kiwanis could be. It could be a "civic league", for instance. You actually want to know both the legal status of Kiwanis (ie, how it's incorporated, which has 2 parts: the incorporation papers, and the state law it hooks into), and any special status granted to Kiwanis by the government, such as the IRS might do.
I am hoping the secretary can handle this. We have to charge sales tax but do not pay it.
Cool. Considering that applying for 501c3 cost us only $150, plus some time, a $970 tax rebate is a rather nice pay off.
You have several choices: