State Exemption Laws and Regulations

Check your state exemption labor and tax laws!

Do not assume just because your church or nonprofit organization is exempt on a federal level that it will be exempt on a state level.

State Exemption Laws and Regulations

For example, churches are exempt from federal unemployment taxes.

However, you need to consult your state's unemployment tax agency to ensure your state grants an exemption from unemployment taxes.

Another example...a minister's housing allowance is excluded from federal income tax; however, a reader in Pennsylvania stated that housing allowance payments were not exempt from income taxes in his state.

The Church Accounting: How To Guide devotes a whole section of the book to payroll for churches. It covers payroll terminology and forms and then takes you through the steps necessary to set up a payroll, calculate and file the necessary taxes and forms, and even details how to handle the minister's payroll. It also includes sections on filling out IRS forms: 1099 and 1096.

If you have QuickBooks or are considering using it in the future, go ahead and purchase the QuickBooks for Churches and the How To Guide combo for a complete package on setting up and administering a payroll using QuickBooks.

QuickBooks for Churches & Church Accounting Combo Bundle

Additional State Exemption Regulations:

  • Washington does not exempt churches, ministries, or nonprofits from sales taxes.
  • Ohio grants an automatic sales tax exemption to churches after incorporation, but requires religious nonprofit organizations such as food pantries or homeless shelters to obtain 501(c)(3) approval.
  • Utah requires churches to file Form TC-160 to grant a sales tax exemption The church must also be incorporated with the state, obtain an FEIN, and receive 501(c)(3) status.
  • Florida requires that you file a Form DR-5 for sales tax exemption.
  • California does not have a blanket exemption for nonprofit or exempt organizations from sales and use taxes. See CA Pub 61 for what is exempt and what is not.
  • Maryland requires churches to do an annual Personal Property return.

So research your state's labor and tax sites. Get on the phone and talk to a “knowledgeable” person about what the state expects from your organization and what your church or nonprofit is exempt from and what it is not exempt from.

I also think we could all help each other by using this page to share state regulations in regards to churches and nonprofit organizations.

Use the form below to comment on your state regulations in regards to churches and nonprofits. You can also use the forum to ask questions. However, be aware that your question may go unanswered for awhile until someone from your state can reply ... or until you find the answer from your state's appropriate agencies and can post your own answer :)

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State Exemption

Do you have a question or comment regarding your state exemption regulations? Share it!

Archive of State Exemption Comments

The following comments, tips, and Q/A were provided by FreeChurchAccounting's generous readers:

Tax exempt status 
A church member occupies the parsonage for a fee. This fee is reduced with an agreement to perform duties at the church before and after church hours. …

Separate Accounts for Designated and Restricted Funds Not rated yet
Does the State of Tennessee require churches to keep two separate checking accounts for designated and restricted funds?

Georgia Sales Tax Not rated yet
Georgia is one state that does NOT give churchs an exemption for Sales Tax. Churches must pay sales tax on items used to operate the ministry.

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The comments above are for general information purposes only and do not constitute legal or other professional advice on any subject matter. See full disclaimer.

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