CAT 2005-14 - Commercial Activity Tax: Nonprofit
Organizations - Issued December, 2005; Revised June, 2006
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Notice
A May 2010 revision of this information release has
been withdrawn based upon public comments submitted to
the Ohio Department of Taxation. A proposal to change Rule 5703-29-10 of the Ohio Administrative Code in order to further clarify what constitutes a
non profit for purposes of the commercial activity tax
is now undergoing further review by the department.
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This rule is to clarify the definition of a nonprofit
organization. This rule is now final and effective. Please
direct any questions to the Commercial Activity Tax Division
of the Ohio Department of Taxation at 1-888-722-8829.
Rule 5703-29-10 Nonprofit organizations and
contributions.
(A) Division (A) of section 5751.01 of the Revised Code
defines “person” for purposes of the commercial activity tax.
The definition excludes nonprofit organizations. This rule
defines a “nonprofit organization.”
(B) Solely for purposes of the commercial activity tax,
“nonprofit organization” means an entity that meets both of
the following requirements:
(1) The entity is organized other than for the pecuniary gain
or profit of, and the entity’s net earnings or any part of
them are not distributable to, the entity’s members,
directors, officers, or other private persons, unless
otherwise permitted by law. The payment of reasonable
compensation for services rendered and the distribution of
assets on dissolution as permitted by the laws under which
the entity is organized is not pecuniary gain or profit or
distribution of net earnings. If all of the entity’s members
are nonprofit organizations, distribution to its members does
not deprive the entity of the status of a nonprofit
organization.
(2) The entity is operating consistent with its organization.
(C) Nonprofit organizations include, by way of example, but
are not limited to, those entities organized under the
nonprofit provisions in Chapter 1702., 1707., 1711., 1713.,
1715., 1716., 1717., 1719., 1721., 1724., 1725., 1727.,
1729., or 1733. of the Revised Code or similar nonprofit
provisions of other jurisdictions.
(1) Rural electric companies and telephone cooperatives are
deemed to be nonprofit organizations under Chapter 1702. or
1729. of the Revised Code for purposes of the commercial
activity tax.
(2) Organizations formed for the purpose of funding political
campaigns are deemed to be nonprofit organizations for
purposes of the commercial activity tax. These organizations
include those authorized under federal law, and certain
entities receiving contributions that are defined in Chapter
3517. of the Revised Code or under comparable laws of other
states. These entities would include a campaign committee, a
continuing association, a political action committee, a
legislative campaign fund, and a political committee.
(3) A charitable lead trust is deemed to be nonprofit
organization during the lifetime of the grantor. Upon the
death of the grantor, the charitable lead trust will no
longer be deemed to be a nonprofit organization.
(4) A limited liability company (“LLC”) meeting the
requirements of paragraph (B) of this rule is deemed to be a
nonprofit organization. For purposes of the commercial
activity tax, a single member LLC is separate and distinct
from its owner. Therefore, in order for it to be considered a
nonprofit organization, it must meet the requirements of
paragraph (B) of this rule separate and apart from its owner.
For example, if a nonprofit organization is the owner of a
single member LLC and that LLC does not meet the requirements
of paragraph (B) of this rule, the LLC does not qualify as a
nonprofit organization.
(D) Receipts of certain contributions and fees are excluded
under divisions (F)(2)(f) and (F)(2)(j) of section 5751.01 of
the Revised Code regardless of whether the person is a
nonprofit organization. To exclude contributions under
division (F)(2)(f) of section 5751.01 of the Revised Code,
the contributions must be received by persons described in
section 501(c), 501(d), or 401(a) of the “Internal
Revenue Code of 1986,” 100 Stat. 2085, 26 U.S.C.A. 1, as
amended. For example, certain pension plans may not qualify
as nonprofit organizations. While the contributions and fees
made to those pension plans would be exempt from the
commercial activity tax, gross receipts from the business
operations of those pension plans may be taxable gross
receipts.