Most nonprofit organizations that are recognized by the Internal Revenue Service (IRS) will qualify for tax- exempt status with the Office of Tax and Revenue (OTR). Exempt and nonprofit organizations must establish and maintain their District tax-exempt status. OTR ensures that exempt and nonprofit organizations are registered for taxes and have applied for tax-exempt status by filing form FR-164 [PDF] and, if required, pay the proper taxes.
- A business incorporated with a nonprofit status is classified as a nonprofit organization.
- A nonprofit organization that has received its determination approval and is recognized tax-exempt under the IRS code is classified as a tax-exempt organization.
- IRS recognized 501(c)(3) tax-exempt organizations may qualify for District tax-exempt status for income/franchise, sales and use taxes, and some personal property taxes. These exempt organizations are called "semipublic institutions," which include corporations, community chests, funds, and foundations organized and operated exclusively for religious, scientific, charitable, or educational purposes, i.e., 501(c)(3) type organizations, of which, no part of the net earnings insures to the benefit of any private shareholder or individual.
- IRS-recognized, tax-exempt organizations other than 50l(c) (3) organizations may qualify for District tax-exempt status for income/franchise.
Exempt Filing Requirement for Nonprofit Organizations
- Nonprofit organizations must file Form FR-164 (Application for Exemption)
- Send application to OTR, PO Box 556, Washington, DC 20044, Attn: Exempt Organizations. For more information, call James Lesane at (202) 442-6623 or email [email protected].
Sales Made by Exempt Organizations
Sales within the District by tax-exempt organizations that have an office or engage in sales activities in the District of Columbia and have not been deemed outside of that organization’s exempt purpose, are subject to District sales taxes.
You must pay franchise taxes if you have unrelated business income subject to tax under Section 511 of the Internal Revenue Code (IRC) or income subject to tax under Section 527 of the IRC as follows:
- Corporations Organized Under Act of Congress
- Title Holding Corporation for Exempt Organization
- Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations
- Civic Leagues, Social Welfare Organizations, and Local Associations of Employees
- Labor, Agricultural, and Horticulture Organizations
- Business Leagues, Chambers of Commerce, Real Estate Boards
- Fraternal Beneficiary Societies and Associations
- Voluntary Employees’ Beneficiary Associations
- Domestic Fraternal Societies and Associations
- Cemetery Companies
- State Chartered Credit Union, Mutual Reserve Funds
- Post or Organizations of Past or Present Members of the Armed Forces
- Title Holding Corporations or Trusts with Multiple Parents
- Insurance companies, companies which guarantee the fidelity of any individual or individuals, such as bonding companies which furnish abstracts of title or which insures titles to real estate, all of which pay taxes on their gross earnings, premiums, or gross receipts under existing laws of the District
- Tax exempt organizations that have unrelated business income under the Internal Revenue Code are subject to the District’s franchise tax on such income.
Generally, unrelated business income and expenses are apportioned under the three-factor formula, simple average rules.
Tax-exempt organizations that are not semipublic institutions are subject to the District’s Personal Property tax on property located in the District.
Semipublic institutions that have unrelated business income are subject to personal property tax to the extent that such property is used to produce the unrelated business income.
Semipublic institutions are subject to paying District sales tax. The semipublic institution must have an office in the District of Columbia to qualify for sales tax exemption.
Sales Made to Semipublic Institutions
Purchases made by semipublic institutions are exempt from District sales taxes if:
The institution has first obtained an exemption certificate and presents it at the time of sale
The vendor keeps a record of the sale including date, name of purchaser and certificate number
The institution is located within the District
The items purchased are used for the institution's purposes and not for personal use or later resale.
The unemployment insurance rate for new employers is 3% and the taxable wage base is $9,000.
Rates for existing employers are based on their unemployment insurance experience.
Currently, unemployment insurance tax rates range from 1.6% to 7% on the first $9,000 of each employee's wages. Employees are not taxed.
- All employers are required to provide workers' compensation coverage. The insurance rate per $100 of payroll varies depending on the type of business and/or the occupational category of the worker.
- Tax exempt non-profit employers described in section 501(c) (3) of the Internal Revenue Code may elect in lieu of paying taxes, to reimburse the Office of Unemployment Compensation for the amount of benefits paid attributable to service in their employ. For additional information, you may call (202) 698-5706.
Employer Withholding Taxes
DC Income Tax withholding is required on all tax exempt and nonprofit employees who are District residents.
For more information on exemption, please read through the question-and-answer section.