State Versus Federal NPOs
Well before you ever get to the stage of making an application to the IRS to obtain tax-exempt status, the federal government requires your organization to be incorporated in the state in which you intend to do business. Every state and territory has forms, generally issued by the state's secretary of state or other designated state office, to make incorporation an easy, straightforward process.
Some states walk you through a short questionnaire. Others simply ask for a copy of your articles of incorporation. All states will ask you to identify the type of corporation you intend to form. The answer is a “state nonprofit corporation.”
Incorporating as a nonprofit corporation in your state has no bearing on your federal tax-exempt status. Unless you obtain a federal tax exemption, your organization remains completely liable for federal taxes. State tax liability is a separate situation that is determined by state law and is beyond the scope of this book.
Stopping with State Nonprofit Incorporation
Many organizations choose to stop at this stage and operate as a state nonprofit, which is a perfectly fine way to go. However, that status presents limitations both to your organization and to members of the public who wish to donate funds. If you are in a state with a corporate income tax, check with the revenue office to verify exactly what your tax liability is and how obtaining your federal tax exemption affects your situation.
With federal nonprofit status, your organization does not have to pay corporate income tax to the federal government. If you have obtained the 501(c)(3) status, people who contribute money to your organization can deduct those contributions from their tax liability with certain restrictions. It also opens the door to funding opportunities that may be limited to federally recognized nonprofits.
In addition to the many financial requirements you must follow to remain in compliance with state and federal laws, always remember that you are doing your work for the community in which you live and are employed.
State Secretaries of State as a Resource
The resource list contains a link to the National Association of Secretaries of State (NASS), which in turn has the addresses, telephone numbers, and e-mails for the state secretary of state in each of the 50 states. You will also find the current roster on the CD included with this book. The individual office holders listed in the roster will change with election cycles, but the contact information will remain the same.
Additionally, the incorporation forms on the CD have all the necessary addresses and contact information you will need, be it the office of the state secretary of state or a separate office established exclusively to handle corporate filings. Contact these offices with any specific questions you may have with respect to your organization and how to best incorporate as a nonprofit in your state.
