Yes. Homeless shelters in the United States that are operated as not-for-profits are considered tax-exempt in the United States.
Keep in mind that a homeless shelter that is operated by a nonprofit organization will be considered exempt from federal income taxation under Section 501© (3) of the Internal Revenue Code.
A homeless shelter refers to a temporary lodging facility that is meant to cater to the housing needs of homeless transient persons.
In the United States, these shelters especially those that are operated as not for profit can apply for tax-exempt status under Section 501© (3) of the Internal Revenue Code.
This status exempts them from federal income tax. Nevertheless, this still doesn’t mean they are exempt from all taxes, especially since there may be state-specific taxes.
Possible Taxes Homeless Shelters Pay in the United States
Although nonprofit homeless shelters in the United States might very well be exempt from federal income tax under Section 501© (3), keep in mind that they may be expected to pay other taxes. A good number of these taxes include:
Truth be told, homeless shelters that qualify for federal tax-exempt status are, by law, exempt from paying property taxes in all 50 states.
However, it is important to note that the exact value of the exemption will depend on the size and nature of the real estate that the nonprofit owns. Homeless shelters might be expected to property taxes on the real estate they own.
Depending on state and local regulations, note that a homeless shelter might be expected to pay sales tax on certain goods and services.
However, there are exemptions that apply, but most of these exemptions apply in the case where the seller is a for-profit or nonprofit organization: sale for resale, sale to a nonprofit organization, sale in interstate commerce, and sale of machinery and equipment for farms and manufacturing in enterprise zones.
Aside from that, items sold at a special event or even a thrift store operated by a homeless shelter are subject to sales tax. Nevertheless, you can avoid paying sales tax by providing your state exemption identification number to the vendor.
It is possible to obtain an active exemption identification number by applying to your state Department of Revenue, and it is most likely valid for five years, after which it will need to be renewed.
Unrelated Business Income Tax (UBIT)
If a homeless shelter takes part in any form of activity unrelated to its tax-exempt purpose, then it will be expected to pay UBIT on the income generated from those activities.
Truth be told, a homeless shelter has the potential to make good income that is unrelated to their tax-exempt purpose, and this can generate a tax, which is otherwise known by the IRS as the “Unrelated Business Income Tax” or “UBIT.”
Keep in mind that UBIT that is not properly reported and paid will come with certain penalties and fines from the IRS, and this might even have a negative impact on the tax-exempt status of the homeless shelter.
Once a homeless shelter fulfills the necessary requirement and is granted 501© (3), it gets a “letter of determination” from the IRS. The essence of this document is to serve as proof of its tax-exempt status to state and local governments.
However, you will want to know that some states have the same requirements for tax exemption as the IRS, and showing proof of 501© (3) status more or less exempts nonprofits from many state taxes.
However, note that laws vary from one state to another as well as from one locality to another. As such, the exact taxes that are exempt and how to apply for exemption will also vary depending on the regulations of your shelter location.
Homeless shelters that are operated as nonprofit organizations are not exempt from paying all taxes. For instance, the IRS has always noted that organizations that recruit workers will have to remit or pay payroll and other taxes on their employees’ wages.
In the same vein, homeless shelters in the United States that have full-time staff will be expected to pay payroll tax on their workers’ wages.
Nevertheless, the same as always, there are exceptions to this tax. For instance, if an all-volunteer staff carries out a rummage sale to sell donated goods, the IRS will exempt the income they generated from the rummage sale from taxes.
Howbeit, it is pertinent to reiterate that Local laws might very well mandate the shelter to pay property taxes on the for-profit portion of its business.