Note: This information only applies to Registered Student Organizations. Campus Life programs are considered under the umbrella of the university, and all tax filing is handled as part of the university’s annual reporting.
All student groups are required to operate as non-profit organizations that do not generate income for individuals and/or the organization itself. Student organizations, however, are not automatically registered as 501(c)3 organizations, and do not, therefore, have federal tax-exempt status unless applied for independently.
“Nonprofit” status is not the same as “tax-exempt” status. Nonprofit corporations may be taxable or tax-exempt. Nonprofit status is applied for through the state of Minnesota, whereas tax-exempt status is applied for through the IRS. Groups must become state nonprofits before they can apply for tax-exempt status. Groups that do not have nonprofit status are legally classified as “unincorporated associations”.
It is recommended, but not required, that all RSOs file with the State of Minnesota to become a certified nonprofit organization. Becoming a non-profit shifts financial liability of the student group from the officers to the group.
Minnesota nonprofits register through the Secretary of State’s website. Registration involves filing Articles of Incorporation and paying a $70-$90 filing fee ($90 for expedited service in-person and online filings, $70 if submitted by mail). Nonprofits must file an annual renewal with the state of MN. There is no fee for this. This process must be completed before a group can apply for tax-exempt status through the IRS.
Consider filing to become a tax-exempt organization (also known as a 501(c)(3)) through the IRS if your group’s annual income is more than $5,000. If a group decides not to become tax-exempt and earns $5,000 or more in one year, the group is required to file taxes as an unincorporated association. The group can expect tax rates of 21% federal taxes plus state taxes. The IRS may also require these groups to back-file for previous years, resulting in additional costs. Obtaining tax-exempt status will make your group exempt from owing income tax, which will result in a significant savings over time. Additionally, obtaining 501(c)(3) status can make donations to your group tax-deductible for donors. This is important if you solicit large donations.
The first step to becoming tax-exempt is to register as a MN non-profit organization. You can then register as a 501(c)(3) organization by filing IRS Form 1023-EZ (if annual income is below $50,000) or IRS Form 1023 (if income exceeds $50,000). Forms can be found at https://www.irs.gov/forms-instructions.
Becoming a tax-exempt organization requires a one-time fee of $275 (for organizations filing Form 1023-EZ) or $600 (for organizations filing Form 1023). While this may be a financial burden, this will make your organization exempt from owing taxes to the IRS now and in the future, which could mean significant long-term savings. Groups requesting Student Services Fees are permitted to include their filing costs in their request.
Additional information regarding starting a 501(c)(3) is available through the MN Council of Nonprofits.
No. Nonprofits may qualify for exemption from sales tax on purchases through the Minnesota Department of Revenue, however this is a separate exemption from the federal income tax exemption. The sales tax exemption allows purchases of office supplies, furniture, computer equipment, and other taxed items to be purchased without the sales tax. Prepared food, candy, soft drinks and lodging are excluded from the exemption. Most exemptions are given to purely educational charitable or religious organizations.
To apply for sales tax exemption, organizations must complete and submit Form ST16, Application for Nonprofit Exempt Status – Sales Tax. If approved, the RSO will receive an authorization letter from the Department of Revenue.
Some student groups may have tax-exempt status through a group exemption from their national organization. You should contact your national chapter to see if you have federal tax-exempt status (from the IRS) as well as state sales tax exemption for any items purchased.