An old college acquaintance recently made a fiery statement on social media stating that a certain kind of nonprofit “is not taxed” and that they should “lose their tax exempt status.” For the sake of peace, I won’t specify what kind of nonprofit it is. As for the matter of that “lose their tax exempt status” statement, it demonstrates a common, hazy misconception that taxes are all the same. 501c3 nonprofits are exempt from INCOME tax, but may be (and usually are) subject to other taxes, such as sales tax and employee taxes.
In reality, there are actually many different types of taxes. It’s worth getting a general picture where those taxes may appear in your daily life.
Just My (Tax) Type
Generally speaking, taxes can be broadly split into these categories:
- Income Taxes
- Taxes based upon your income earned. Factors such as the type of income, how it was earned, and where it was earned often affect how your income tax is calculated. This tax exists at the federal and state level. Some states do not have an income tax. The IRS is the most well-known agency involved in income tax. Nonprofits may qualify for an “exemption” from income tax through the IRS and state income tax agencies.
- Consumption Taxes
- Very broad category of taxes based on taxable transactions that take place. Some common ones are:
- Sales Tax – taxes applied often to retail sales. Does not exist at the federal level but almost all states enact some form of sales tax.
- Use Tax – taxes applied to the use of goods where a sales tax would normally apply. E.g. purchasing items from out-of-state with no sales tax applied. Exists often at the state level.
- Excise tax – A tax applied to a specified type of good, such as alcohol, gasoline, and cigarettes. Exists usually at the state level.
- Very broad category of taxes based on taxable transactions that take place. Some common ones are:
Property Taxes
- Taxes based upon the value of owned property or any improvements made upon it. Often exists at the county and city level.
- Payroll Taxes
- Otherwise known as “employee taxes.” These taxes apply towards business owners with employees. Exists at both the federal and state level. The taxes collected go to assorted unemployment and social security programs.
There’s quite a plethora of taxes that can affect our daily lives! Business owners should especially be aware of these taxes, and we at MiklosCPA can help! MiklosCPA supports business owners in emerging and mid-sized firms with their accounting and tax needs. We got your back so you can focus on what drives you, your business! Give us a ring (or email) and learn more how we can help your business. Meanwhile, let’s keep in touch and follow our social media pages.