The primary statutes governing a nonprofit corporation in North Carolina are found in the North Carolina Nonprofit Corporation Act, which specifies how to form, operate and dissolve a nonprofit corporation. If the nonprofit also intends to operate with a tax-exempt status, it must comply with the applicable North Carolina tax statutes, as well as certain provisions of the Internal Revenue Code.
North Carolina Nonprofit Corporation Act
The North Carolina Nonprofit Corporation Act defines a nonprofit corporation as a "corporation intended to have no income or intended to have income that is not distributable to its members, officers or directors." This distinguishes a nonprofit corporation from for-profit corporations regarding its intended purpose; however, in terms of formation, organizational structure and management, a nonprofit corporation is similar to for-profit corporations. For example, the act requires articles of incorporation be filed with the Secretary of State to form a nonprofit corporation. The nonprofit must have a management structure consisting of a board of directors consisting of at least one member. Bylaws governing the nonprofit’s operations must be adopted by the board or initial incorporators, and the board is authorized to appoint officers to manage the day-to-day operations of the nonprofit according to the bylaws.
Income Tax Statutes
A nonprofit corporation is not automatically tax-exempt. To qualify for an exemption from federal income tax, the nonprofit must submit an application for tax-exempt status with the IRS under Internal Revenue Code section 501(c). Although the statute sets forth several categories constituting tax-exempt purposes, nonprofit corporations acting as private foundations or public charities typically apply for tax-exempt status under subsection (3) using IRS Form 1023. If the nonprofit's application is approved, written notification commonly known as a "determination letter" is sent by the IRS to the nonprofit indicating its tax-exempt status. North Carolina General Statute section 105‑130.11(a) states that nonprofits exempt from federal income tax are automatically considered exempt from state income tax. Nonprofits that are not exempt from federal income tax must submit an application for exemption to the North Carolina Department of Revenue, if the nonprofit wants an exemption from state income tax.
Sale and Use Tax Statutes
Nonprofit corporations are required to pay sale and use tax on any items that are purchased or used in the operation of the nonprofit's activities. However, subsection (b) of North Carolina General Statute section 105‑164.14 permits certain types of nonprofits to apply for a refund of the sales and use tax it paid on purchased items and services, except for electricity and telecommunications services. The types of nonprofits that qualify for the refund include hospitals, educational institutions and religious or charitable organizations. The refund is applied for on a semi-annual basis.
Real Property Tax Statutes
A nonprofit corporation may also be exempt from paying real property tax, if a specific exemption is set forth in the state Constitution or in the Machinery Act, which is included in the North Carolina General Statutes at Chapter 105 from Articles 11 through 30. For example, a nonprofit corporation operating as a hospital is exempt from real property taxes under section 105‑278.8. To claim the exemption, a nonprofit must submit an application under section 105‑282.1 to either the Department of Revenue or assessor of the county in which the property is located, depending on which agency appraises the property.