Picked up a large nonprofit hospital system in Ohio as a client. Assumed they would be exempt from sales tax on utilities since they are a 501(c)(3). Turns out Ohio does NOT automatically exempt nonprofits from sales tax on utility purchases. The exemption in Ohio applies to specific categories — government entities, churches, and organizations that qualify under very narrow criteria. Most nonprofit hospitals do not qualify unless they can demonstrate the energy is used exclusively for charitable purposes. Spent two weeks researching this before I realized there was no claim to file. Lesson learned — do not assume nonprofit status equals tax exempt on utilities.
Nonprofits and sales tax — not as simple as you would think
Indiana is similar. 501(c)(3) status does not automatically get you a utility sales tax exemption. You need to apply for a specific exemption through the Department of Revenue and even then it only covers certain types of organizations. I had a YMCA client who was paying sales tax for years — they qualified for the exemption but had never applied. Refund was only about $6K but they were grateful.
Ohio nonprofit exemptions are a minefield. I practiced in Cleveland and the rules changed in 2016 when they revised the tax code. Some organizations that were previously exempt lost their exemption. If you are auditing nonprofits in Ohio you absolutely need to check the current rules because old exemption certificates may no longer be valid.
Good advice all around. I ended up finding a rate classification error on the hospital account instead so the audit was not a total loss. But the tax exemption research was two weeks I will not get back. Now I check tax status first before spending time on it.