The Transaction Privilege and Use Tax includes business activities such as retail sales, restaurants, lodging, leasing, amusements, construction, transportation, communications and other activities.
Vendors are not required to pay the transaction privilege tax on business with qualifying health care organizations, community health centers, organizations providing free meals to the indigent or providing job placement, training and rehabilitation services for the mentally or physically handicapped.
Qualifying health care and other nonprofit organizations must annually apply for an exemption letter with the Arizona Department of Revenue. For more information on this process, visit: https://azdor.gov/business/transaction-privilege-tax
In other words, nonprofits that provide the services just listed above are exempt from paying 'sales tax.'
Unrelated Business Income Tax (UBIT)
Unrelated Business Income Tax (UBIT) regulations impact nonprofits that sell items for revenue when those activities generate income that is not directly related to their tax-exempt mission. UBIT is a tax imposed on certain income generated by nonprofits from business activities that are unrelated to their primary exempt purpose. UBIT regulations require nonprofits to carefully assess income-generating activities that are not directly related to their mission. It's essential for nonprofits to understand these rules, report taxable income accurately, and consult with tax professionals or legal advisors to navigate UBIT compliance effectively while selling items for revenue.
For more information, visit: https://azdor.gov/forms/exempt-organization-tax-highlights
501(c)3 nonprofit organizations are generally not required to pay the Transaction Privilege and Use Tax on retail or food sales sold by the organization that are directly related to their mission.
Nonprofit organizations should send a letter to the Department of Revenue requesting an exemption from the Transaction Privilege Tax on items purchased for resale. The letter should include a description of the organization's charitable purpose and activities and a copy of the 501(c)3 Determination letter from the IRS.
Send the letter to:
1600 W. Monroe St.
Phoenix, AZ 85007-2650
If an exemption from TPT on purchases for resale is granted, the Department of Revenue will provide a letter to this effect which the organization makes available to vendors. There are some exceptions and many specific considerations. Every organization should consider its particular circumstances. More information is available at https://azdor.gov/business/transaction-privilege-tax