Wisconsin Tax Law: What Nonprofit Organizations Should Know About Tax Exemption

Understanding Wisconsin tax law is essential for nonprofit organizations that wish to navigate the complexities of tax exemption. In Wisconsin, as in many states, nonprofits must adhere to specific regulations to qualify for tax-exempt status.

The first step for nonprofits in Wisconsin is to ensure they meet the criteria set by the Internal Revenue Service (IRS) for federal tax exemption. Most nonprofits apply for 501(c)(3) status, which provides significant advantages, including exemption from federal income tax and eligibility to receive tax-deductible donations. To maintain this status, organizations must be organized and operated exclusively for charitable, religious, educational, or scientific purposes.

Once federal exemption status is obtained, nonprofits in Wisconsin must file additional paperwork with the state to receive state tax exemptions. Wisconsin offers a variety of tax exemptions, including sales and use tax exemption and property tax exemption. To qualify for these exemptions, nonprofits typically need to provide proof of their IRS tax-exempt status.

For sales and use tax exemption, organizations must complete the Wisconsin Tax Exempt Certificate (Form S-211), which can be given to vendors to avoid paying sales tax on purchases that relate to their charitable activities. This form only applies to purchases made exclusively for nonprofit purposes, so organizations must keep meticulous records to substantiate their tax-exempt purchases.

Property tax exemption in Wisconsin is also a vital consideration for nonprofits that own real property. Nonprofits seeking property tax exemption must apply to the local municipality where the property is located. Generally, the property must be used exclusively for exempt purposes, and the tax exemption must be approved by the local governing body.

It is crucial for nonprofits to stay compliant with both state and federal regulations to maintain their tax-exempt status. This includes submitting the necessary annual filings, such as the IRS Form 990, which provides transparency regarding the organization's finances and activities. Failure to file these forms can lead to the loss of tax-exempt status, which can significantly impact funding and operations.

Additionally, nonprofits must be aware of the implications of unrelated business income (UBI). If a nonprofit earns income from activities that are not substantially related to its exempt purpose, it may be subject to unrelated business income tax (UBIT). It is important for organizations to differentiate between revenue-generating activities that align with their mission and those that do not to avoid potential tax liabilities.

In conclusion, understanding Wisconsin tax law is vital for nonprofit organizations wishing to utilize tax exemptions effectively. By obtaining the appropriate federal and state exemptions, complying with annual filing requirements, and being mindful of unrelated business income, organizations can optimize their resources, maximize their impact, and fulfill their charitable missions. Nonprofits should consider consulting with tax professionals or legal advisors who specialize in nonprofit law to ensure they are fully compliant and taking advantage of available exemptions.