Tennessee Guidelines for a Nonprofit Business

By Elizabeth Rayne

Anyone operating a nonprofit business in Tennessee needs to know the state regulations to avoid putting their organization in jeopardy. Nonprofits that do not follow Tennesse law may face fines -- or, ultimately -- dissolution. Tennessee law regulates how a nonprofit organization is registered, what nonprofit businesses or organizations can do with their profits, how the organizations can fundraise, and when they can avoid sales tax. The state also imposes annual reporting requirements on all nonprofits.

Anyone operating a nonprofit business in Tennessee needs to know the state regulations to avoid putting their organization in jeopardy. Nonprofits that do not follow Tennesse law may face fines -- or, ultimately -- dissolution. Tennessee law regulates how a nonprofit organization is registered, what nonprofit businesses or organizations can do with their profits, how the organizations can fundraise, and when they can avoid sales tax. The state also imposes annual reporting requirements on all nonprofits.

Registration

A Tennessee nonprofit must file its charter with the secretary of state's office to register the organization. If an organization does business within the state without filing its charter, it will face civil fines. The charter must include the following: the name and address of the nonprofit; a statement that the organization is not for profit; and a statement that the organization is a public benefit, mutual benefit, or religious organization. A mutual benefit organization serves the members of the organization, such as a golf club, whereas a public benefit organization exists to serve the public. Additionally, a nonprofit must designate a registered agent that will be responsible for accepting all legal documents on behalf of the organization. The charter may also include the names of the initial board of directors, and the purpose of the nonprofit.

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Restrictions on Distributions

Tennessee law prohibits a nonprofit business from distributing profits to nonprofit directors or officers, but it does not prohibit directors from receiving reasonable compensation for services performed, or for the nonprofit to use profits to repay debts. Unlike for-profit corporations, a nonprofit business may use its profits only to further the charitable purpose of the organization. When the nonprofit dissolves, the assets must be distributed to another nonprofit business or government organization.

Fundraising

Nonprofit organizations that solicit more than $30,000 from the public annually are required to file a registration statement with the secretary of state's office. Every year after registration, the nonprofit must renew its application and submit a summary of financial activities. The organization must keep financial records on file, along with records of all fundraising activities. State officials may request to see these documents at any time. Further, Tennessee law prohibits charities from using "false or deceptive" practices when soliciting donations. For example, if a nonprofit claimed that a celebrity endorsed the organization, when in reality the celebrity knows nothing about the nonprofit, the state may impose a civil penalty on the organization.

Sales and Use Tax

To avoid sales and use tax, nonprofit organizations must apply for an exemption certificate from the Tennessee Department of Revenue. The exemption may be used to buy, free of sales tax, goods and services that the nonprofit will use or give away. With few exceptions, the exemption does not apply when the nonprofit resells goods for profit.

Annual Reporting

Every nonprofit must file an annual report with the Division of Business Services. The report is due on the fourth month following the close of the organization's fiscal year. For fiscal years that end in December, the report is due April 1st. The report must include updated contact information for the nonprofit, and a statement that it continues to operate as a mutual benefit, public benefit or religious organization.

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References

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What to Do With Money When Dissolving a 501c3?

To qualify for 501(c)(3) status, an organization must operate exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, to foster amateur sports competition, or for the prevention of cruelty to children or animals. When a 501(c)(3) dissolves, the organization must settle all outstanding liabilities and distribute any leftover funds according to the provision set in its charter.

Washington State Rules for Nonprofit Organizations

Rules for nonprofit organizations in Washington state are similar to rules for other business organizations. Nonprofits are required to register with the Department of Revenue and comply with certain tax rules. Tax exemptions are available in some circumstances from the Department of Revenue. Nonprofits that intend to solicit charitable donations must register with the Charities Program of the Secretary of State. Nonprofits that incorporate must comply with the Washington Nonprofit Corporation Act.

Can a 501(c)(3) Make a Profit?

A 501(c)(3) organization is a nonprofit that has made a special election with the Internal Revenue Service to be treated as exempt from federal income taxes. The formation and operation of these organizations is governed by both state and federal laws, which require that the business further a specific charitable, scientific, educational or religious purpose. This sets 501(c)(3) organizations apart from for-profit ventures, which are formed for the purpose of generating profits for their owners. Although nonprofits are not prohibited from generating profit from business activities, state and federal laws limit how these profits may be used.

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