Exemptions and Exempt Organizations
Exemptions
All sales of tangible personal property or of taxable services are presumed not to be exempt from sales and use tax. The burden of proving that a sale of tangible personal property or taxable services is not a sale at retail is upon the vendor unless the vendor timely accepts in good faith a certificate from the purchaser that the sale is exempt from tax.
Vendors shall exercise reasonable judgment in accepting exemption certificates in good faith and shall not be protected from paying sales tax on the items purchased with exemption certificates that are not exempt from tax if they fail to do so. Accepting an expired exemption certificate demonstrates bad faith by a vendor.
If the purchaser is the United States, the District of Columbia, or any instrumentality of either, the vendor shall show on the record of sale the instrumentality or agency to which the sale was made, the amount of the sale, and date of the sale.
If a purchaser of tangible personal property is a member of a foreign diplomatic corps and personally presents an identification card issued to that purchaser by the State Department, exempting the person from excise taxes, the card shall be authority for the vendor not to add reimbursement for the sales tax to the sales price of the property; Provided, that the vendor shall show on the record of each sale the name of the purchaser, the date of sale, the amount of the sale, and the State Department identification card number.
A certificate of exemption shall be effective on the date of issuance. No person shall be issued a refund, based upon a certificate of exemption, for sales taxes paid prior to the date of issuance of the certificate of exemption.
Each certificate of exemption shall be maintained by the vendor and shall be authority for the vendor not to add reimbursement for the sales tax to the sales price of the property or service. A vendor shall also maintain a record of the name of the purchaser, the date of each sale, and the amount of the sale for each exempt sale.
A vendor has ninety (90) days from the date requested in which to deliver the certificates of exemption to the Office of Tax and Revenue. Exemptions claimed by those certificates acquired during this 90-day period shall be subject to independent verification by the Office of Tax and Revenue before deductions are allowed. Certificates delivered after the 90-day period shall not be accepted.
Exemption certificates are nontransferable and are valid for use only by the person or entity to which the certificate has been issued.
*DC Municipal Regulations
Certificate of Resale
The burden of proving that a sale of tangible personal property or taxable services is not a sale at retail is upon the vendor, unless the vendor timely takes in good faith a certificate from the purchaser that the property is purchased for resale.
*414.2 As of November 1, 2017, for the purposes of determining sales for resale, the Deputy Chief Financial Officer shall only recognize certificates of resale on forms or copies of forms authorized by the District of Columbia Office of Tax and Revenue. Authorized resale certificates must be obtained through an annual process from the Office of Tax and Revenue at its website mytax.dc.gov.
*414.3 As of November 1, 2017, an authorized resale certificate shall be valid only for a period of one year and shall include an expiration date. Resale certificates shall be valid only until the expiration date stated on the certificate.
*414.4 A certificate of resale is only valid if it contains the purchaser’s District of Columbia Sales and Use Tax Registration Number.
*414.5 A purchase is for resale in the following circumstances:
(a) The person purchases tangible personal property or taxable services for the purpose of resale or rental in the same form;
(b) The person purchases tangible personal property or taxable services to incorporate as an attachment to, or as a material part of other tangible personal property to be produced for sale or rental by manufacturing, assembling, processing, or refining; or
(c) The person purchases taxable services to use or incorporate in the same form as a material part of other services to be provided for sale or rental.
*414.6 A vendor shall refuse to accept a resale certificate for property and taxable services which he knows or should know is not for resale. Vendors are expected to exercise reasonable judgment in accepting resale certificates in good faith and will not be protected from paying sales tax on the items purchased with resale certificates that are not for resale if they fail to do so.
*414.7 If all of a person's purchases of tangible personal property or taxable services from a vendor are for resale (fall within any of the circumstances described in Subsection 414.4), the vendor may accept a blanket certificate of resale from the person.
*414.8 Each certificate of resale shall be maintained by the vendor and shall be authority for the vendor not to add reimbursement for the sales tax to the sales price of the property or service.
*414.9 Certificates of resale which are canceled in accordance with the provisions of the Act and this chapter are void as of the date of cancellation.
*414.10 If a person purchases tangible personal property or services for purposes other than those enumerated in the certificate of resale, the person cannot use a certificate of resale to exempt the purchase from the tax. The purchaser must reimburse the vendor for the sales tax or file a return and pay use tax on the purchase.
*414.11 Any vendor who purchases tangible personal property or services under a certificate of resale, who then gives away such tangible personal property or services for no consideration, will be considered to be the consumer or user of the tangible personal property or services. As such, the retailer must reimburse the vendor for the sales tax or file a return and pay the tax as a consumer or user under the use tax, as the case may be.
SOURCE: Commissioners' Order 54-1415, 1 DCR 4 (July 19, 1954); as amended by Final Rulemaking 64 cate of Resale
You must request a Certificate of Resale online by filing form OTR-368 on MyTax.DC.gov. Please view instructions on how to file Form OTR-368.
Contractor’s Exempt Purchase Certificate
(a) A contractor purchasing property at retail for a construction contract with a semipublic institution holding a valid exemption certificate or with the United States or District governments or their instrumentalities shall obtain from the Deputy Chief Financial Officer a certificate of exemption stating that the institution is entitled to the exemption. If the contractor does not present the certificate of exemption to the vendor, the vendor shall collect the reimbursement for the tax.
(b) Beginning with exemption certificates issued after November 1, 2017, exemption certificates issued to contractors shall be valid only for the period of the exempt construction project, based on a signed contract with an exempt entity.
(c) Exemption certificates issued to contractors prior to November 1, 2017 shall not be accepted for sales made after November 1, 2018, or the end date of the exempt project, whichever is first.
(d) If a vendor makes sales to an exempt contractor, the vendor shall keep a copy of the certificate of exemption, the name of the purchaser, the date of each sale, and the amount of the sale.
(e) In order to receive an exemption certificate, a contractor shall follow the Office of Tax and Revenue’s electronic application process.
You must request a Contractor’s Exempt Purchase Certificate by filing form OTR-553 on MyTax.DC.gov. Please view instructions on how to file Form OTR-553.
Utility Exemption Certificate
*417.11 Exemption Certificate for Natural or Artificial Gas, Oil, Electricity, Solid fuel, or Steam.
(a) Except as otherwise provided in this section, each purchaser of natural or artificial gas, oil, electricity, solid fuel, or steam for any purpose exempt from sales tax under D.C. Official Code §§ 47-2005(11) or (11A), in order to qualify for the exemption, shall present evidence satisfactory to the Deputy Chief Financial Officer that the sale is exempt under the Act and this subsection, and shall obtain from the Office of Tax and Revenue a Utility exempt certificate to be presented to the vendor.
(b) Beginning with exemption certificates issued after November 1, 2017, exemption certificates issued to purchasers of natural or artificial gas, oil, electricity, solid fuel, or steam shall be valid only for a period of five years from the date issued or until the purchaser is no longer entitled to the exemption, whichever is earlier.
(c) Exemption certificates issued to purchasers of natural or artificial gas, oil, electricity, solid fuel, or steam exempt from sales tax under D.C. Official Code §§ 47-2005(11) or (11A) prior to November 1, 2017, shall no longer be accepted after November 1, 2018.
(d) All exemption applications filed by each purchaser of natural or artificial gas, oil, electricity, solid fuel, or steam for any purpose exempt from sales tax under D.C. Official Code §§ 47-2005(11) or (11A) shall include, but are not limited to, the following information:
- Taxpayer ID Number;
- Name;
- Address;
- Sales Tax Account Number;
- NAICS Code;
- Proof of utility account; and
- Utility details, including but are not limited to utility purpose, utility provider, utility account number, meter number, service address.
You must request a Utility Exemption Certificate by filing form OTR-308 on MyTax.DC.gov. Please view instructions on how to file Form OTR-308.
Residential Parking Exemption
(a) Except as otherwise provided in this section, each purchaser of exempt parking, storage, or keeping motor vehicles or trailers, shall present evidence satisfactory to the Deputy Chief Financial Officer that the sale is exempt under the Act and this section, and shall obtain from the Director a specific exemption to be presented to the vendor.
(b) Beginning with exemption certificates issued after November 1, 2017, exemption certificates issued to purchaser of exempt parking, storage, or keeping motor vehicles or trailers shall be valid only for a maximum period of two (2) years; in the case of residential parkers, the exemption certificate shall be valid for two (2) years, or for the period of a valid lease in the District of Columbia, whichever is shorter.
(c) Exemption certificates issued to purchasers of exempt parking, storage, or keeping motor vehicles or trailers prior to November 1, 2017 shall not be accepted for sales made after November 1, 2018.
(d) All exemption applications filed by a purchaser of exempt parking, storage, or keeping motor vehicles or trailers shall include, but are not limited to, the following information:
- Taxpayer ID Number (SSN);
- Name;
- Address;
- District Driver’s license number;
- District vehicle tag information;
- Vehicle make, model, year;
- Parking lot details, including address and distance from residence; and
- A copy of the taxpayer’s District Driver's License, District vehicle registration, and proof of District residence.
You must request a Utility Exemption Certificate by filing form OTR-308 on MyTax.DC.gov. Please view instructions on how to file Form OTR-308.
Exempt Organizations
Most nonprofit organizations that are recognized by the Internal Revenue Service (IRS) will qualify for tax- exempt status with the Office of Tax and Revenue (OTR). Exempt and nonprofit organizations must establish and maintain their District tax-exempt status. OTR ensures that exempt and nonprofit organizations are registered for taxes, have applied for tax-exempt status by creating a MyTax account and filing form FR-164 on MyTax.DC.gov, and, if required, that they pay the proper taxes.
- A business incorporated with a nonprofit status is classified as a nonprofit organization.
- A nonprofit organization that has received its determination approval and is recognized tax-exempt under the IRS code is classified as a tax-exempt organization.
- IRS recognized 501(c)(3) tax-exempt organizations may qualify for District tax-exempt status for income/franchise, sales and use taxes, and some personal property taxes. These exempt organizations are called "semipublic institutions," which include corporations, community chests, funds, and foundations organized and operated exclusively for religious, scientific, charitable, or educational purposes, i.e., 501(c)(3) type organizations, of which, no part of the net earnings insures to the benefit of any private shareholder or individual.
- IRS-recognized, tax-exempt organizations other than 50l(c) (3) organizations may qualify for District tax-exempt status for income/franchise.
Exempt Filing Requirement for Nonprofit Organizations
- Nonprofit organizations must file Form FR-164 (Application for Exemption) online at MyTax.DC.gov.
- Please view instructions on how to file Form FR-164.
Sales Made by Exempt Organizations
Sales within the District by tax-exempt organizations that have an office or engage in sales activities in the District of Columbia and have not been deemed outside of that organization’s exempt purpose, are subject to District sales taxes.
Franchise Taxes
You must pay franchise taxes if you have unrelated business income subject to tax under Section 511 of the Internal Revenue Code (IRC) or income subject to tax under Section 527 of the IRC as follows:
- Corporations Organized Under Act of Congress
- Title Holding Corporation for Exempt Organization
- Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations
- Civic Leagues, Social Welfare Organizations, and Local Associations of Employees
- Labor, Agricultural, and Horticulture Organizations
- Business Leagues, Chambers of Commerce, Real Estate Boards
- Reserved
- Fraternal Beneficiary Societies and Associations
- Voluntary Employees’ Beneficiary Associations
- Domestic Fraternal Societies and Associations
- Cemetery Companies
- State Chartered Credit Union, Mutual Reserve Funds
- Post or Organizations of Past or Present Members of the Armed Forces
- Title Holding Corporations or Trusts with Multiple Parents
- Insurance companies, companies which guarantee the fidelity of any individual or individuals, such as bonding companies which furnish abstracts of title or which insures titles to real estate, all of which pay taxes on their gross earnings, premiums, or gross receipts under existing laws of the District
- Tax exempt organizations that have unrelated business income under the Internal Revenue Code are subject to the District’s franchise tax on such income.
Generally, unrelated business income and expenses are apportioned under the three-factor formula, simple average rules.
Personal Property
Tax-exempt organizations that are not semipublic institutions are subject to the District’s Personal Property tax on property located in the District. Semipublic institutions that have unrelated business income are subject to personal property tax to the extent that such property is used to produce the unrelated business income.
Sales Taxes
Semipublic institutions are subject to paying District sales tax. The semipublic institution must have an office in the District of Columbia to qualify for sales tax exemption.
Sales Made to Semipublic Institutions
Purchases made by semipublic institutions are exempt from District sales taxes if:
- The institution has first obtained an exemption certificate and presents it at the time of sale.
- The vendor keeps a record of the sale including date, name of purchaser and certificate number.
- The institution is located within the District.
- The items purchased are used for the institution's purposes and not for personal use or later resale.
Unemployment Insurance
The unemployment insurance rate for new employers is 3% and the taxable wage base is $9,000. Rates for existing employers are based on their unemployment insurance experience. Currently, unemployment insurance tax rates range from 1.6% to 7% on the first $9,000 of each employee's wages. Employees are not taxed.
Workers’ Compensation
- All employers are required to provide workers' compensation coverage. The insurance rate per $100 of payroll varies depending on the type of business and/or the occupational category of the worker.
- Tax exempt non-profit employers described in section 501(c) (3) of the Internal Revenue Code may elect in lieu of paying taxes, to reimburse the Office of Unemployment Compensation for the amount of benefits paid attributable to service in their employ. For additional information, you may call (202) 698-5706.
Employer Withholding Taxes
DC Income Tax withholding is required on all tax exempt and nonprofit employees who are District residents.
Exempt Organizations Frequently Asked Questions (FAQs)
1. How can an exempt organization renew an exemption certificate?
All exempt organizations must renew their exemption certificates at MyTax.DC.gov once they have received notice that their exemption is set to expire. While not yet required, OTR encourages all taxpayers to proactively renew their exemption certificates to avoid the possibility of an expiration.
2. Can the new version of the District of Columbia Tax Exempt Certificate be used in the same manner as the old certificate to exempt an organization from tax at a hotel?
Exempt organizations can use their updated exemption certificate in the same manner as the old exemption certificate.
Note: New exemption certificates will have an expiration date printed on the certificate, after which time they will no longer be valid.
3. What if an exempt organization received a renewal notice for exemption?
Exemption organizations may renew their exemptions at MyTax.DC.gov. For questions and assistance, exempt organizations may contact OTR’s e-Service Unit at e-services.otr.dc.gov.
4. How can an organization be recognized as tax exempt from DC Franchise Tax, DC Sales Tax or DC Personal Property Tax?
The responsibility for establishing tax exempt shall rest upon the organization. An organization that is recognized as tax exempt by the Internal Revenue Service (IRS) is not automatically recognized tax exempt under the laws of the District of Columbia. In order to establish tax exemption, an organization shall file Form FR-164 on MyTax.DC.gov.
5. What type of exempt organizations may quality for personal property tax exemption?
Semipublic institutions (IRC § 501(c) (3)) may qualify for personal property tax exemption.
6. What is a semipublic institution?
Semipublic institution means any corporation, and any community chest, fund or foundation, organized exclusively for religious, scientific, charitable, or educational purposes, including hospitals, no part of the net earnings of which insures to the benefit of any private shareholder or individual.
7. What type of exempt organizations may qualify for sales tax exemption?
Semipublic institutions may qualify for sales tax exemption provided the organization has a location/office in the District of Columbia.
8. What is the effective date of a personal property tax exemption?
The effective date for a personal property tax exemption shall be the July 1 following the date of the initial application request.
9. What type of exempt organizations may qualify for franchise tax exemption?
Generally, most organizations recognized tax exempt by the Internal Revenue Service except social clubs (IRC § 501(c) (7)).
10. Are exempt organizations required to collect DC sales tax on sales of tangible personal property?
Yes, even though the exempt organization is exempt from DC Sales and Use Tax on purchases of tangible personal property or services.
11. What are the procedures for an individual to inspect applications and related financial documents of recognized exempt organizations by the District of Columbia?
Individuals desiring to inspect applications and related financial documents of organizations that have been recognized tax exempt shall direct their request in writing to the Chief Counsel, Office of Tax and Revenue, PO Box 556, Washington, DC 20044.
If an exempt organization conducts a few yearly specific events (i.e. bake sale and other fundraising events) and is not registered to collect sales tax, call Larry Williams, Collection division, to register for special events at (202) 442-6800.
For additional exempt organization questions, call James Lesane at (202) 442-6623 or email at [email protected].