To be tax exempt in Ohio, a nonprofit generally needs to secure federal 501(c)(3) recognition from the IRS first, then pursue Ohio’s sales tax, property tax, and Commercial Activity Tax exemptions through their own separate processes, register with the Ohio Attorney General, and keep filing annual returns with the IRS so none of it unravels. Each exemption has its own form, its own agency, and its own rules about what counts as a qualifying use. Miss any one of them and the organization can end up paying tax it shouldn’t, or losing exemptions it already had.
Start With 501(c)(3) Recognition
Nearly every Ohio tax exemption for nonprofits points back to federal 501(c)(3) status. Ohio’s sales tax exemption statute, ORC 5739.02(B)(12), explicitly names 501(c)(3) organizations as qualifying for relief on purchases.1Ohio Legislative Service Commission. Ohio Revised Code 5739.02 – Levy of Sales Tax Most organizations apply using a Form 1023-series application, though churches and public charities with annual gross receipts normally under $5,000 are not required to apply.2Internal Revenue Service. Application for Recognition of Exemption
To qualify under 501(c)(3), the organization must be organized and operated exclusively for religious, charitable, scientific, literary, educational, or certain other listed purposes.3Internal Revenue Service. Exempt Organization Types No part of its net earnings can benefit any private shareholder or individual, and it cannot devote a substantial part of its activities to lobbying or political campaigns.
When the IRS issues your determination letter, keep it. You’ll be asked for copies when you register with the Ohio Attorney General and when you apply for property tax exemption.
Sales Tax Exemption and How to Claim It
Ohio’s sales tax exemption for nonprofits lives in ORC 5739.02(B)(12), which removes the tax from purchases of goods and services made by churches, 501(c)(3) organizations, and other nonprofits operated exclusively for charitable purposes in Ohio.1Ohio Legislative Service Commission. Ohio Revised Code 5739.02 – Levy of Sales Tax The statute defines charitable purposes broadly: relief of poverty, improvement of health, advancement of education or science, and promotion of social welfare all qualify. The core restrictions are the same two from the 501(c)(3) rules: no private benefit from net income, and no substantial lobbying activity.
Ohio does not run a central database of exempt buyers. The exemption happens at the register, through a certificate the buyer hands the vendor. The Ohio Department of Taxation issues two forms: a Unit Exemption Certificate for one-time purchases and a Blanket Exemption Certificate (Form STEC B) for ongoing purchases from the same vendor.4Ohio Department of Taxation. ST 2005-02 – Exemption Certificate Forms For an organization that buys regularly from the same supplier, the blanket certificate is the practical choice because it covers all qualifying future purchases without new paperwork each time.
Filling out either form requires the organization’s legal name, address, and the specific statutory reason for the exemption, such as the charitable or religious nature of the purchase. The completed certificate goes to the vendor, not the state. A vendor who obtains a fully completed exemption certificate is relieved of liability for collecting and remitting tax on that sale.5Ohio Legislative Service Commission. Ohio Revised Code 5739.03 – Exemption Certificates If the exemption later turns out to be improperly claimed, the purchasing organization owes the unpaid tax, not the vendor. Keep copies of every certificate you issue.
Property Tax Exemption
Exempting real estate from property tax is an entirely separate process from sales tax, with its own statutes. ORC 5709.12 exempts real property belonging to charitable institutions when the property is used exclusively for charitable purposes.6Ohio Legislative Service Commission. Ohio Revised Code 5709.12 – Exemption of Charitable Institutions ORC 5709.07 exempts houses used exclusively for public worship, along with the books and furniture inside them and the surrounding grounds necessary for their use, provided those grounds are not leased or used for profit. Church-owned property used primarily for retreats or camping also qualifies as long as it isn’t someone’s permanent residence.7Ohio Legislative Service Commission. Ohio Revised Code 5709.07 – Exemption of Houses of Public Worship
“Exclusively” is doing real work in both statutes. A building owned by a charity but rented to a for-profit business will not qualify. Property that sits vacant and unused will not qualify either. The state looks at what actually happens on the property day to day, not just whose name is on the deed.
Filing Form DTE 23
The application is Form DTE 23, Application for Real Property Tax Exemption and Remission.8Ohio Department of Taxation. Application for Real Property Tax Exemption and Remission DTE 23 It asks for parcel numbers, a legal description of the land, copies of ownership deeds, and a thorough description of how the property is used for exempt purposes. Explain the daily activities on the site and how they connect to the charitable or religious mission.
One procedural detail trips up applicants: the County Treasurer must complete and sign a Treasurer’s Certificate on the form. If that section isn’t filled out and signed, the Tax Commissioner has no jurisdiction to act on the application and it can be dismissed.8Ohio Department of Taxation. Application for Real Property Tax Exemption and Remission DTE 23 File three copies with the County Auditor where the property sits. The Auditor reviews, makes a recommendation to grant, partially grant, or deny, and forwards two copies to the Ohio Department of Taxation’s Equalization Division for a final determination by the Tax Commissioner. The filing deadline is December 31 of the year for which exemption is sought.
The timeline from filing to decision can run from several months to over a year depending on complexity. Don’t treat the property as exempt until you have written confirmation. If the exemption is granted, the property comes off the taxable rolls and qualifying past taxes may be remitted.
Commercial Activity Tax
Ohio’s Commercial Activity Tax is a gross receipts tax on businesses, and nonprofits are excluded from it entirely. ORC 5751.01(E)(8) lists nonprofit organizations as “excluded persons,” meaning they are not considered taxpayers under the CAT and do not need to register or pay the tax.9Ohio Legislative Service Commission. Ohio Revised Code Chapter 5751 – Commercial Activity Tax The exclusion applies automatically based on nonprofit status; there is no separate CAT application to file. What keeps the exclusion in place is maintaining the organization’s nonprofit structure and federal exempt status.
Register With the Ohio Attorney General
This is the step new nonprofits most often miss. Any charity incorporated or organized in Ohio, holding assets in Ohio, or conducting programs in Ohio must register with the Ohio Attorney General’s Charitable Law Section under the Charitable Trust Act. Organizations that solicit donations must also register under the Charitable Organization Act. Registration must happen before the organization begins soliciting gifts, or within six months of creation for new Ohio organizations.10Ohio Attorney General. Charity Registration
Initial registration requires copies of articles of incorporation, bylaws or other creating documents, and the IRS determination letter. Organizations without federal tax-exempt status submit an Affirmation of IRS Status Form instead. After the initial registration, an annual report is due on the 15th day of the fifth month following the close of the fiscal year. For a calendar-year organization, that is May 15. The Attorney General’s office does not grant its own extensions but honors any extension the IRS has granted for federal filing purposes.10Ohio Attorney General. Charity Registration
Keep Your Federal Status Alive
Losing federal 501(c)(3) status is not just a federal problem. Because Ohio’s sales tax exemption, property tax exemption, and CAT exclusion all lean on nonprofit standing, losing the federal recognition can unravel the state exemptions with it. The most common way organizations lose their status is by failing to file the annual IRS return.
If a tax-exempt organization fails to file its required annual return for three consecutive years, federal tax-exempt status is automatically revoked. No warning, no hearing. The effective date of revocation is the filing due date of the third missed return.11Internal Revenue Service. Automatic Revocation of Exemption for Non-Filing FAQ Getting status back then means filing a new application and paying the fee again.
Which form you file depends on size:
- Form 990-N, the e-Postcard, is available to organizations with gross receipts normally $50,000 or less. It is a brief electronic filing.12Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N
- Form 990-EZ covers organizations with gross receipts under $200,000 and total assets under $500,000.
- Form 990 is required for organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more.13Internal Revenue Service. Instructions for Form 990 Return of Organization Exempt From Income Tax
Churches and their integrated auxiliaries are generally exempt from the annual filing requirement. Most other 501(c)(3) organizations are not, including the small ones that only owe the e-Postcard. Three years of silence and the exemption is gone.
When Nonprofit Income Is Still Taxable
Being tax exempt in Ohio does not mean every dollar the organization earns is tax-free. If the nonprofit regularly conducts a trade or business that isn’t substantially related to its exempt purpose, the income from that activity is subject to unrelated business income tax. An organization with $1,000 or more in gross income from unrelated business activities must file Form 990-T, and if the tax owed is expected to be $500 or more, estimated tax payments are required.14Internal Revenue Service. Unrelated Business Income Tax
Several common nonprofit activities are specifically excluded from UBIT. Work performed substantially by volunteers does not count, which is why a volunteer-run bake sale is not taxable. Selling donated merchandise, as many thrift stores do, is excluded. Activities carried on primarily for the convenience of members, students, or employees, like a school cafeteria, get a pass. So do investment income such as dividends, interest, royalties, and certain rental income.15Internal Revenue Service. Unrelated Business Income Tax Exceptions and Exclusions
Where organizations run into trouble is with activities that look like a regular commercial business: a nonprofit hospital running a commercial parking garage open to the public, or an educational institution licensing its name for merchandise. If the activity is regularly carried on and isn’t substantially related to the exempt purpose, the income is taxable regardless of how the profits are ultimately spent. Pouring the money back into the mission does not change the answer.