Q&As

Tax-exemption is an acknowledgment of an organization performing an activity that relieves some burden that would otherwise fall to federal, state, or local government. The government, in fact, provides an indirect subsidy to nonprofits and receives a direct benefit in return. Nonprofits also benefit the society as a whole when they provide valuable services. The viability of some of these services would be threatened if they were subject to taxes. Tax-exemption is afforded to churches as a safeguard to preserve separation of church and state by preventing governments from using taxation to favor one religion over another.

Almost all nonprofits are exempt from state and local property taxes; federal, state, and local income taxes; and state and local sales taxes. They are, however, required to pay taxes on income derived from activities that are unrelated to their mission. Nonprofits are not exempt from withholding payroll taxes for employees.