501c3 Tax Exempt Status

501(c)(3) Tax Exempt Status in California

In California, a 501(c)(3) tax-exempt status refers to both the federal recognition from the IRS and a separate state exemption from the California Franchise Tax Board (FTB). An organization must obtain both to be fully exempt from federal and state income taxes.

California Tax Exemptions for 501(c)(3) Nonprofits

Corporate Franchise and Income Tax

A California nonprofit corporation is not automatically exempt from state taxes, even with a federal 501(c)(3) determination.

• Obtaining state exemption: To gain exemption from California franchise and income tax, the organization must file an Exemption Application (Form FTB 3500) with the FTB.
• Without state exemption: A California corporation without state-level exemption must still file a corporate return and pay the minimum $800 franchise tax annually.

Property Tax

Nonprofits that have both federal and state income tax exemption can also apply for property tax relief.

• Welfare exemption: California offers a “Welfare Exemption” on real and personal property owned and operated by qualifying 501(c)(3) organizations. The property must be used exclusively for religious, charitable, scientific, or hospital purposes.
• Application process: The exemption is administered by the State Board of Equalization and local county assessors. An annual filing is required.

Sales and Use Tax

California does not provide a broad sales and use tax exemption for nonprofits, including 501(c)(3)s.

• General rule: Nonprofits in California must collect and remit sales tax on the retail sale of goods.
• Specific exemptions: There are narrow exceptions for certain sales, such as some thrift stores operated by nonprofits that relieve poverty if they meet strict requirements.

How to Get 501(c)(3) Status in California

1. Incorporate in California: File Articles of Incorporation as a Public Benefit, Religious, or Mutual Benefit Corporation with the California Secretary of State.
2. Obtain federal exemption: File Form 1023 (or 1023-EZ for smaller organizations) with the IRS to get federal 501(c)(3) status.
3. Get state tax exemption: File Form FTB 3500 with the California Franchise Tax Board. If you have your federal determination letter, you can use the simpler Form FTB 3500A.
4. Register with the Attorney General: Charitable organizations must register with the Attorney General’s Registry of Charitable Trusts within 30 days of receiving assets.
5. File annual reports: Nonprofits with state exemption must file an annual information return with the FTB, either Form 199 or the electronic FTB 199N.

Disclaimer: This is a general overview of the filings for 501(c)(3) in California. Specific tax situations can vary significantly. You should always consult with a qualified tax professional or legal advisor for personalized advice.