Exemption Letter Required
When the nonprofit acts as a customer, the vendor may pass the economic expense of the tax on to the customer (i.e., the nonprofit). Accordingly, the nonprofit customer will indirectly pay the tax, unless there is a specific statutory exemption.
Normally, to take advantage of an exemption, nonprofits must provide the business with an exemption certificate (i.e., a Form 5000). However, some specifically delineated organizations will need an exemption letter from the Arizona Department of Revenue (ADOR) in order to take advantage of an exemption.
The organizations listed below need to apply for an exemption letter from ADOR. These exemption letters must be used in conjunction with Form 5000HC, Transaction Privilege Tax Healthcare Exemption Certificate, by the organization when engaging in exempt transactions as customers with business owners.
- Qualifying hospitals, which include:
- A licensed nonprofit hospital.
- A licensed nonprofit nursing care institution.
- A licensed nonprofit residential care institution.
- A residential care facility operated in conjunction with a licensed nonprofit nursing care institution.
- A licensed nonprofit kidney dialysis center.
- A hospital, nursing care institution or residential care institution operated by the federal government, this state or a political subdivision of this state.
- A facility that is under construction and that on completion will be any of the above.
- Qualifying health care organizations, which are:
- Qualified as a nonprofit organization under section 501(c) Internal Revenue Code rules.
- Uses, saves, or invests at least eighty percent of its gross receipts only for health and medical related educational and charitable services.
- All monies that it receives from all sources each year are only for health and medical related educational and charitable services, as documented by annual financial audits.
- Qualified as a nonprofit organization under section 501(c) Internal Revenue Code rules.
- Qualifying community health care centers, which are:
- An entity that is recognized as nonprofit under section 501(c)(3) of the United States internal revenue code, that is a community-based, primary care clinic that has a community-based board of directors and that is either:
- The sole provider of primary care in the community.
- A nonhospital affiliated clinic that is located in a federally designated medically underserved area in this state.
- Includes clinics that are being constructed as qualifying community health centers.
- An entity that is recognized as nonprofit under section 501(c)(3) of the United States internal revenue code, that is a community-based, primary care clinic that has a community-based board of directors and that is either:
- Rehabilitation programs for mentally or physically disabled persons, which are:
- An organization that provides rehabilitation programs for mentally or physically disabled persons is one that has qualified under section 501(c)(3) of the United States Internal Revenue Code and that engages in and uses such property exclusively in programs for mentally or physically disabled persons if the programs are exclusively for training, job placement, rehabilitation or testing.
Continuing Qualification Review
Please note, once an organization receives the required exemption letter with a date of January 2024 or thereafter, that exemption letter will remain valid until the organization no longer qualifies for the exemption letter. See A.R.S. § 42-5009(S)(1). At the beginning of each year, subsequent to the initial certification - an organization should review any statutorily relevant information to determine if they still qualify to use their exemption letter. Some examples of an organization losing its qualification to use its exemption letter include losing its nonprofit status or failing to adhere to any other listed requirements on this webpage.
NOTE: If the organization no longer qualifies for the exemption letter, it is their responsibility to:
- notify the Department and any vendors they have supplied it to that they no longer qualify for the exemption, and
- discontinue using the exemption letter.
Regardless of the organization’s notification to the Department and its own vendors, if they no longer qualify for the exemption letter – yet continue to utilize it – then they are liable in an amount equal to any tax, penalty, and interest from the date they no longer qualify, that the seller would have been required to pay if the seller had not been given the exemption letter by the institution.