The last session of the Kentucky General Assembly resulted in a much-awaited gift for nonprofit organizations: an exemption from sales tax.
The exemption was a legislative priority of the Kentucky Nonprofit Network, a state association of nonprofits, and the Center for Nonprofit Excellence, which is Louisville’s nonprofit hub.
“Many of the local nonprofits provided leadership and went to Frankfort and this really took all of us to get it done,” said Ann Coffey, the center’s interim chief executive. “But a special nod (goes) to KNN for their focus and dedication to really carrying the load on this.”
The legislation was part of a “cleanup” bill (House Bill 354) intended to correct parts of a hastily passed tax bill from last year.
The network helped get the job done for nonprofits in 2019 by urging them to contact legislators to let them know how burdensome being forced to charge sales tax was, said Danielle Clore, KNN’s president and chief executive. It also worked with lawmakers to come up with the right legislative solution.
The sales tax expansion, which took effect last summer, was frustrating, she said, not only because of the administrative headaches it caused nonprofits but also because it was a hindrance to raising dollars to provide services.
Both KNN and the Center for Nonprofit Excellence worked with nonprofits to help them comply with the law while it was in effect and are doing the same to let nonprofits know they are now free — for the most part.
“Due to an emergency clause in this (2019) legislation, sales of admissions and tangible property sales at fundraising events by all nonprofit groups and governmental organizations are now exempt from sales tax for transactions on or after March 26, 2019,” the Kentucky Department of Revenue says on its website. “… All of these nonprofit organizations should discontinue charging sales tax to their customers and benefactors immediately.”
However, the exemption doesn’t apply to sales by retail businesses, such as bookstores and thrift stores, that are owned or operated by nonprofit or governmental groups, according to the department.
So sales tax still applies when you’re “regularly and directly competing with a for-profit,” but that would not apply to something like an organization having an occasional bake sale, Clore said.
The new law, signed by Gov. Matt Bevin March 26, took effect right away due to an emergency clause that Clore said was “very critical.”
“We know organizations are headed into a very heavy spring and summer fundraising season, certainly in Louisville, around the Derby, and so we were thrilled because otherwise it would have become effective in late June or July,” Clore said.
Organizations celebrating the exemption include Fern Creek Highview United Ministries, where families with relatives in an adult day program will no longer have to pay sales tax, and the Kentucky Derby Museum.
The exemption “really gives us relief from the administrative process of just collecting and remitting tax but also obviously the financial burden,” museum President and Chief Executive Patrick Armstrong said. “We had to charge tax on admissions, membership, event tickets and rentals.”
Armstrong said he didn’t know offhand how much the sales tax expansion cost the museum, but he said “we’re very pleased that the lawmakers removed the tax burden from us and happy that the legislature passed the bill and that the governor signed it.”