Exempt organizations




Some governments grant broad exclusions from all taxation for certain types of organization. The exclusions may be restricted to entities having various characteristics. The exclusions may be inherent in definitions or restrictions outside the tax law itself.

Approaches for exemptionedit

There are several different approaches used in granting exemption to organizations. Different approaches may be used within a jurisdiction or especially within sub-jurisdictions.

Some jurisdictions grant an overall exemption from taxation to organizations meeting certain definitions. The United Kingdom, for example, provides an exemption from rates (property taxes), and income taxes for entities governed by the Charities Law. This overall exemption may be somewhat limited by limited scope for taxation by the jurisdiction. Some jurisdictions may levy only a single type of tax, exemption from only a particular tax.citation needed

Some jurisdictions provide for exemption only from certain taxes. The United States exempts certain organizations from Federal income taxes, but not from various excise or most employment taxes.

Charitable and religious organizationsedit

Many tax systems provide complete exemption from tax for recognized charitable organizations. Such organizations may include religious organizations (temples, mosques, churches, etc.), fraternal organizations (including social clubs), public charities (e.g., organizations serving homeless persons), or any of a broad variety of organizations considered to serve public purposes.

The U.S. system exempts from Federal and many state income taxes the income of organizations that have qualified for such exemption. Qualification requires that the organization be created and operated for one of a long list of tax exempt purposes, which includes more than 28 types of organizations and also requires, for most types of organizations, that the organization apply for tax exempt status with the Internal Revenue Service, or be a religious or apostolic organization. Note that the U.S. system does not distinguish between various kinds of tax exempt entities (such as educational versus charitable) for purposes of granting exemption, but does make such distinctions with respect to allowing a tax deduction for contributions. In November 2017, the GOP released a tax bill that would allow churches to keep their tax exemptions even if they endorse political candidates.

The UK generally exempts public charities from business rates, corporation tax, income tax, and certain other taxes.

Governmental entitiesedit

Most systems exempt internal governmental units from all tax. For multi-tier jurisdictions, this exemption generally extends to lower tier units and across units. For example, state and local governments are not subject to Federal, state, or local income taxes in the U.S.

Pension schemesedit

Most systems do not tax entities organized to conduct retirement investment and pension activities for employees of one or more employers or for the benefit of employees. In addition, many systems also provide tax exemption for personal pension schemes.

Educational institutionsedit

Some jurisdictions provide separate total or partial tax exemptions for educational institutions. These exemptions may be limited to certain functions or income.

Other not-for-profit entitiesedit

Some jurisdictions provide tax exemption for other particular types of organizations not meeting any of the above categories.

Reciprocal exemptionsedit

Some jurisdictions allow tax exemption for organizations exempt from tax in certain other jurisdictions. For example, most U.S. states allow tax exemption for organizations recognized for Federal tax purposes as tax exempt.citation needed

Sales taxedit

Most states and localities imposing sales and use taxes in the United States exempt resellers from sales taxes on goods held for sale and ultimately sold. In addition, most such states and localities exempt from sales taxes goods used directly in the production of other goods (i.e., raw materials).

See also Sales taxes in the United States, tax-free shopping, tax holiday.

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