Sales/use taxes where applicable

Federal tax law stops at income tax

When a board files Form 1120-H or Form 1120, it is answering exactly one question: what does the association owe the IRS on its income. Section 528 and the rest of the federal corporate tax code never speak to sales tax, use tax, or any other state levy.

"A homeowners association shall be subject to taxation under this subtitle only to the extent provided in this section."

Source: 26 U.S.C. Section 528, Legal Information Institute, Cornell Law School

"This subtitle" means Subtitle A of the Internal Revenue Code, federal income tax. Sales and use tax lives in a completely different body of law: state statute. A board that has its 1120-H filing perfect has answered zero percent of its sales tax question.

What sales and use tax actually covers

Sales tax is what a vendor charges the association on a purchase, mulch, office supplies, a new pool pump. Use tax is the same tax owed when a purchase is made without sales tax being charged, often on out-of-state or online orders. Some states also ask whether an association must charge and collect tax when it rents out a clubhouse or amenity to members or outsiders.

Whether your association owes tax as a purchaser, must collect it as a facility "seller," or qualifies for any exemption as a nonprofit corporation all vary by state, and sometimes by city or county. None of it is answered by anything already covered in this Course.

Where to actually get the answer

Ask a CPA licensed in your state, or contact your state department of revenue directly. Do not assume either that nothing is taxed because the association is a nonprofit corporation, or that everything is taxed because dues involve money changing hands. The same trap that catches boards on federal income tax, assuming nonprofit incorporation equals tax exemption, shows up here too. It is worth checking rather than guessing either way.