Nonprofit is a term that refers to an organization which uses all profits to further organizational goals instead of distributing the profits to shareholders, organizers or owners. (NOTE: Distribution of wages includes the payment of wages.) In Colorado, an organization may choose to be an Unincorporated Nonprofit Association or a Nonprofit Corporation.
Nonprofit associations are normally formed by clubs or other less formal groups that do not intend to seek any special tax-exempt status or to exist beyond the current members. If organized as an unincorporated nonprofit association, a constitution, articles of association or a written declaration of organization must be adopted by two or more persons and the name must be registered with the Colorado Secretary of State online at www.sos.state.co.us.
To further clarify an association’s nonprofit status, additional optional documentation may be filed with the Secretary of State. However, organizations that want to become tax-exempt or exist beyond the current organizers should consider organizing as a Nonprofit Corporation. While not explicitly required, it will be easier to obtain tax-exempt status if organized as a corporation rather than as an association. A Nonprofit Corporation must file articles of incorporation with the Secretary of State in accordance with the Colorado Nonprofit Corporation Act. For the necessary forms to become a Nonprofit Corporation, contact the Secretary of State, 1700 Broadway, Suite 200, Denver, CO 80202, www.sos.state.co.us.
After organizing, submit Form SS-4, Application for Employer Identification Number, to have the Internal Revenue Service (IRS) assign a Federal Employer Identification Number (FEIN), whether there are any employees or not. The FEIN is the basic federal tax ID number for the organization.
Tax-exempt status requires an additional set of forms and paperwork. Tax-exempt status is granted by the IRS to nonprofit organizations to determine their status for paying federal income taxes. Forming a nonprofit association or even a nonprofit corporation does NOT automatically establish tax-exempt status. In addition, there are 1-800-829-1040 or www.irs.gov.
After a 501(c) (3) Letter of Determination is received from the IRS, apply to the Colorado Department of Revenue for a sales tax-exemption. A copy of the Letter of Determination, financial statements and documents confirming your organizational structure and function must accompany application Form DR 0715. If the Colorado Department of Revenue determines the organization qualifies for Colorado tax-exempt status, a Certification of Exemption authorizing purchases for the organization without state or state collected local sales tax-es will be granted. A Letter of Determination from the IRS does not guarantee Colorado tax-exempt status.
Some religious, charitable and educational nonprofit tax-exempt organizations may qualify for property-tax exemption. An organization must own real property to take advantage of this exemption. Federal tax-exempt status is not used to determine whether an organization qualifies for the property-tax exemption. Organizations that would like more information should contact the Colorado Department of Local Affairs, Division of Property Taxation at 1313 Sherman, Room 419, Denver.
Although nonprofit tax-ex- empt organizations may not pay income tax, they must still file tax returns. IRS Form 990 is used for federal income tax returns and DR 112 for state returns. While there are a few exceptions, tax-exempt organizations are still responsible for all payroll taxes and all other employer responsibilities on employees and must collect appropriate sales tax when selling personal tangible products to the public. See the Employer Responsibilities and Sale Tax chapters of this guide for more information.
Colorado Non-Profit Association is a state-wide “trade association” for nonprofits in Colorado, composed of a diverse group of more than 1,100 members. It provides information programs, publications and group purchasing services. The association helps charitable and philanthropic nonprofits manage their organizations and resources, represents the non-profit sector, and serves as a bridge between the public and private sectors. Their bookstore sells a number of useful publications including “How to Form Your Own Nonprofit Corporation” and “Fiscal Sponsorship: 6 Ways to Do It Right.”
Colorado Non-Profit Association: 789 Sherman Street #240, Denver, CO 80203.
Community Resource Center (CRC) helps take start-up groups through the process of forming a nonprofit. CRC provides direct training, consultation and empowerment services to nonprofits, including leadership training for directors. CRC also publishes the “Colorado Grants Guide” and the “Colorado Funding Report.”
CRC: 789 Sherman #210, Denver, CO 80203- 0426, www.crcamerica.org or email firstname.lastname@example.org
For more information visit https://mybiz.colorado.gov/intro.