An Overview of State Filing Requirements for Arts and Culture Nonprofits

While many arts and culture organizations enjoy tax-exempt 501(c)(3) status, it’s important to remember that this does not excuse them from a variety of state filing requirements. These filing requirements, which include both tax and non-tax filings, are crucial compliance obligations that must be fulfilled. 

Depending on the nature of a nonprofit’s activities, as well as the state(s) they operate in, these filings can be simple activities or complex undertakings that can incur thousands of dollars in compliance costs each year. Determining which end of this spectrum an organization lies on often requires the professional guidance of an experienced CPA. 

In this overview, we detail some of the most relevant state filing requirements faced by arts and culture organizations. We highlight the various nuances that determine whether these filing requirements may be triggered and explore the steps organizations should take to determine their filing requirements. 

At Smith + Howard, our specialized nonprofit accounting group has an extensive track record supporting the tax and accounting needs of leading museums, theaters, botanical gardens, and more. To learn more about our services for arts and culture nonprofits, contact an advisor today. 

State Tax Filing Requirements for Arts and Culture Nonprofits

The state income tax filing requirements for tax-exempt arts and culture Nonprofits vary state-by-state. As a general rule, if nonprofits are considered tax-exempt entities at the federal level and do not have any unrelated business income activities, they are not required to file a state level income tax return. They may, however,  be required to provide a copy of their Federal Form 990 to the state in which they are incorporated or registered for business. 

Several states, including Georgia and Illinois, have their own state income tax return for tax-exempt organizations, similar to the IRS Form 990-T. These returns assess state-level income tax on organizations with unrelated business income activities. There are also states which impose a nominal minimum tax or filing fee that a nonprofit must pay if it had any unrelated business income, regardless of whether this created a tax liability or not. Every state is different and nonprofit leaders must understand the income tax and informational filing requirements in their own state.

Beyond the realm of income taxes, there are plenty of other tax filing obligations that organizations may be required to fulfill. 

Payroll Taxes

Just like any for-profit entity, nonprofit organizations must pay payroll taxes on behalf of their employees. This applies both at the federal and the state level. At the federal level, nonprofits must withhold federal income tax, employer and employee social security and Medicare taxes, and unemployment taxes from their employees. 

At the state level, payroll taxes and withholding requirements differ from state to state. Nonprofits must identify these requirements in every state where they have employees and make all appropriate filings to the Department of Labor in their sState. Remember to consider any remote employees since these may trigger filing requirements in new states. 

Dive Deeper: Tax Considerations for Companies Employing Remote Workers

There may be credits that organizations can leverage to minimize their payroll tax burden. One example is the Georgia Retraining Tax Credit, which gives businesses a maximum tax credit of $1,250 per employee for eligible retraining expenses. Credits such as this can be applied against payroll taxes, minimizing your organization’s tax burden. 

Learn More: Payroll Considerations for Arts and Culture Organizations

Property Taxes

In most instances, states and municipalities will exempt either some or all of the property owned by a nonprofit organization from property taxes. However, some tax jurisdictions differ in their policies, both in terms of eligibility for exemptions and in the processes nonprofits must follow to secure these exemptions. 

Nonprofit organizations should work with experienced advisors to ensure that they file accurate property tax returns and secure all available property tax exemptions. If you need assistance navigating nonprofit property taxes, contact Smith + Howard’s Accounting and Advisory group.  

Sales Taxes

In the majority of states, nonprofits are required to collect and remit state sales tax. Sales tax is a complex field: each state sets its own regulations and there is often significant nuance: a nonprofit might be required to collect sales tax on one type of product, but not on another. 

For nonprofits that operate in multiple states, tracking these requirements and submitting the relevant filings demands significant resources. If your organization needs assistance in this area, contact Synexus: a tech-powered sales tax compliance solution supported by the indirect tax professionals at Smith + Howard. 

Unrelated Business Income Tax (UBIT) Filings

If a nonprofit organization reports Unrelated Business Income (UBI) on its Form 990-T filing, it likely has state UBIT tax filing obligations. 

For nonprofit organizations that source all of their UBI to one state, such as a museum with income from an on-site restaurant, this is a straightforward calculation. In most cases, nonprofits simply take the UBI computed on Form 990-T and apply the state income tax rate against this. 

However, for many nonprofit organizations, this can be more complex. Often, an organization’s UBI must be allocated between the different states in which that income is derived. If, for instance, a nonprofit organization receives a K-1 from its investments each year, it must determine the states this income is sourced from. This may not be apparent from the K-1 itself and could require nonprofits to follow up with their investment managers to determine which states they have a UBIT filing requirement in. 

Other State Filing Requirements for Arts and Culture Organizations

While tax filing requirements may be top of mind for nonprofit organizations, many arts and culture organizations will have additional compliance requirements above and beyond these. Registration both to do business and solicit charitable contributions in a state must be made with the Secretary of State to keep the nonprofit in good standing. Such registration filings are typically annual and may include an annual filing fee.

Registering to Solicit Contributions

If a nonprofit organization plans to solicit contributions in a given state, it’s important for them to first ensure that they have met the appropriate registration requirements. 

Nonprofits must understand the criteria that different states use to determine whether an organization is soliciting contributions and determine whether their activities meet that test. This is especially important for nonprofit organizations that operate in multiple states. 

Consider the example of a theater company that embarks on a multi-state tour. Before each show, the company asks the audience to make an additional contribution to support the organization. In some states, this may constitute a solicitation and require the theater company to register with the Secretary of State before they could do so. 

Certain Fundraising Activities

Any fundraising activities that involve games of chance, such as raffles and casino nights, often trigger additional state filing requirements, as well. 

These requirements can be extremely strict. Your organization may be required to obtain special licensing from the state or hold any funds raised from these activities in a certain bank account. These requirements, which vary from state to state, make it vital for organizations to understand the state (and federal) compliance requirements associated with embracing more creative fundraising strategies. 

Learn More: Proper Reporting of Special Events: Games & Raffles 

Streamline State Tax Compliance with Smith + Howard

Regardless of whether a nonprofit organization operates in one or dozens of states, ensuring compliance with all relevant state filing requirements should be considered non-negotiable. 

This process is especially complex for organizations that have Unrelated Business Income which must be apportioned between multiple states. If this is an area in which your nonprofit organization could benefit from experienced assistance, the nonprofit accounting team at Smith + Howard can help. 

Our specialized arts and culture nonprofit CPAs bring decades of experience working with some of the most prestigious museums and performing arts organizations across the United States. With in-depth industry knowledge and unmatched technical excellence across nonprofit tax and accounting, our professionals bring the skills and knowledge required to ensure your nonprofit remains in compliance. 
Contact a Smith + Howard advisor today to learn more about accounting and tax support for your nonprofit organization.