Learning how to start a nonprofit in Ohio is not a simple matter. Forming a nonprofit, and securing federal and state tax-exempt status, requires an understanding of both state and federal procedures. To avoid problems, it is advisable to consult with an attorney and an accountant with expertise in nonprofits.
Before filing any documents, you should:
- Read Internal Revenue Service (IRS) publication, Tax-Exempt Status for Your Organization (Pub. 557).
- Read the Ohio Secretary of State's booklet, Your Guide to Starting a Nonprofit in Ohio, covering both nonprofit corporations and unincorporated associations.
- Develop a clear purpose for your organization that meets the requirements for a nonprofit.
- Determine the name your organization will use, and be sure it is available and doesn't infringe on any trademark.
- Create Ohio nonprofit bylaws that will support your tax-exempt status.
- Select your board of directors.
Types of nonprofit organizations
The two main considerations in determining a nonprofit's structure are limiting liability for the organizers and avoiding taxes. An Ohio nonprofit may be organized in one of the following manners, all of which offer limited liability for organizers:
Unincorporated nonprofit association. Ohio's Uniform Unincorporated Nonprofit Association Act allows a less formal structure than a corporation. An unincorporated association is not required to register with the Ohio Secretary of State, but will need to register its name as a fictitious name. It is also required to have an organizational document called a constitution.
Nonprofit corporation. This structure provides the greatest likelihood of obtaining both state and federal tax exemptions. You may reserve the name of your corporation for 180 days by filing an Original Name Reservation (Form 534B) with the Secretary of State, and paying a $39 fee.
Nonprofit LLC. Ohio law allows a limited liability company (LLC) to be created for a nonprofit purpose, but there is no separate classification of a nonprofit LLC. However, it is the position of the IRS that an LLC may only be granted federal tax-exempt status if all of the members of the LLC are tax-exempt organizations.
Apply for a federal Employer Identification Number
You will need to obtain an employer identification number, even if you don't plan to have any employees. This is done by filing an Application for Employer Identification Number (Form SS-4) with the IRS. This may be done online, by fax, or by mail.
Filing articles of incorporation
You will need to file Initial Articles of Incorporation (Form 532B) with the Ohio Secretary of State and pay a $99 filing fee. This filing may be done online. It may also be done by mail, or in person at the Secretary of State's office in Columbus. Expedited filing is available for additional fees. Form 532B does not contain a statement of purpose that meets the requirements for federal tax-exempt status.
Apply for federal tax-exempt status
To avoid federal taxes, you will need to apply for an exemption under Section 501(c) of the Internal Revenue Code. This is done by filing an Application for Recognition of Exemption (Form 1023) with the IRS, and paying a $600 "user fee." The IRS says it will take several hours to learn how to complete Form 1023, and several more hours to complete the form. It can take several months for IRS to process the application.
If your nonprofit meets certain requirements, you can use Form 1023-EZ, and pay a $275 user fee. However, Form 1023-EZ may only be filed online, after you set up an account with pay.gov.
Nonprofits and Ohio Taxes
A nonprofit is not subject to the Ohio Commercial Activity Tax; however, nonprofits may be subject to other Ohio taxes. More information is available online from the Ohio Department of Taxation.
Sales and use tax
If a nonprofit purchases goods or services, it will need to pay sales and use tax on those purchases unless it provides the seller with a Sales and Use Tax Unit Exemption Certificate (Form STEC U).
If your nonprofit will be selling goods or services for six or fewer days in a calendar year, it will not need to collect sales and use tax. If the six-day limit is exceeded, it will need to obtain a vendor's license from the Ohio Department of Taxation, and must collect the tax on all future sales, even if the six-day limit is not exceeded in future years.
A vendor's license may be obtained from the county auditor, or through the Ohio Business Gateway. Depending upon whether sales will be made at your business location or elsewhere, you will either need to file Form ST 1 or Form ST 1T.
Real estate tax
A nonprofit owning real estate will need to pay real estate taxes, unless it obtains a real estate tax exemption. This is done by filing an Application for Real Property Tax Exemption and Remission (Form DTE 23) with the Ohio Department of Taxation.
Taxes related to employees
State and federal incomes taxes and Social Security taxes must be withheld for employees. Furthermore, many municipalities in Ohio have local income taxes, and may require withholding.
Ohio solicitation laws
If your nonprofit will be soliciting donations, it may need to register with the Ohio Attorney General. There may also be local municipal requirements for soliciting contributions, such as obtaining solicitation permits, and reporting contributions and expenses.
The success of your California nonprofit depends, in large part, on how carefully you follow the guidelines for establishing your nonprofit in the beginning. Take the time to understand both the federal and California-specific requirements before your launch your charitable endeavor.
To establish a nonprofit organization in Ohio, you must know both the federal and state-specific rules and regulations surrounding nonprofits—including both their organizational structure and their taxation status. By learning what you need to know up front, you can help avoid troublesome issues later.