Some 501(c)(3) organizations, especially those who began operation or applied for sales tax exemption during 2020, may have paid sales taxes for 2020 while their application for exempt status was processed. The IRS can take between 3-6 months to process and certify a 501(c)(3) sales tax exemption, and individual states such as Pennsylvania may take even longer. Furthermore, in a year where paper filings became obsolete and department employees worked from their homes, it is likely that turnaround times were even longer than the norm. So, what needs to be done to ensure that your Pennsylvania 501(c)(3) organization receives a refund for sales taxes overpaid? Section 7252 of Pennsylvania Statutes Annotated provides that the Pennsylvania Department of Revenue refunds all taxes paid to the Commonwealth to which the Commonwealth is not entitled. In order to receive a refund, a taxpayer must prove that they are entitled through petitioning to the Department of Revenue’s Board of Appeals.
Pennsylvania Tax Refund Petition for 501(c)(3) Organizations:
For Pennsylvania nonprofits, the petition process for tax refunds falls under the jurisdiction of the Board of Appeals for the Department of Revenue. A REV-65 form is required in obtaining a refund for taxes overpaid. REV-65 forms are broken into seven sections. Section I asks for the type of tax requested for refund (sales, income, corporation, etc.), and the total amount requested for refund. Section II asks for the personal information for the petitioner such as who is filing the request, address, contact information, etc. Section III deals with representative information. If your organization has legal representation filing on your behalf, detail who is filing for you. Further, your organization will need to file a Power of Attorney form, REV-677, to assert that a representative has authority to act on behalf of your organization. Section IV asks about scheduling requests; whether or not a hearing is requested for your petition. Section V allows for you to receive future correspondence via US mail or Email, and who will receive such correspondence. Section VI allows for you to lay out your claim for refund. You may attach a document that details the issues and arguments which your petition relies upon and asserts ground for refund. Finally, Section VII is a certification, where either an individual petitioner or an authorized representative signs and dates the REV-65. If your organization is a corporation, the REV-65 must be signed by a corporate officer.
Along with an REV-677 Power of Attorney Form, you must fill out and send to the Board of Appeals with your petition a REV-467 Statement of Authorization Form. An REV-467 is simply an authorization of the release of your tax records to the Board of Appeals for review. You must clarify within your REV-467 individuals to receive tax records, specific tax records to be released, and a certification that either you are the individual whose tax records are to be released, or are otherwise authorized to release such records.
Specific Refunds for Sales and Use Taxes in Pennsylvania:
For organizations that overpaid sales and use taxes in Pennsylvania, you must file an REV-39 along with your REV-65. There are some general guidelines to keep in mind when filing an REV-39. First, you must clearly identify, with the assigned docket number or electronic confirmation number along with the petitioner's name, all submissions sent separately from the original petition. All invoices or payment documents must be readable, identifiable, and relevant to the transaction at issue. Information must be complete and filed in orderly fashion with the Board of Appeals via mail, email or a portable data storage device. The Board does not accept emailed downloadable .zip files or links to stored files. Further, make sure to not compress files or password protect individual documents. Documents being submitted must not be stapled, and horizontal bar codes on any paper document should not be obscured. Lastly, once evidence is submitted to the Board as part of a petition, the documents become property of the Commonwealth and will not be returned.
You must fill out an appeals schedule that describes every transaction in question. Make sure to include invoices or other receipts for each transaction. Detailed information such as vendor name, invoice number, invoice date, description of purchased item as described on invoice, total invoice amount, and invoice tax should be included. Next, a petitioner must demonstrate they paid tax on the transaction. Information included to corroborate such proof of payment includes type of tax paid, method of tax payment (check, cash, etc.), date the tax was paid, and copies of receipts or other proof that the tax was paid. The next step will be to explain why a refund is warranted for overpaid sales and use tax. A document providing detailed reasoning as to why a refund is warranted is required. In a case where an organization applied for exempt status, include documents such as application for exemption, certificate of exemption and correspondence with the Department of Revenue regarding the exemption.
Further information regarding refund petitions in Pennsylvania can be found at https://www.boardofappeals.state.pa.us/#. For tax year 2018-2019, the average turnaround time for all refund petitions was 98 days, but the times may be extended due to an influx of petitions following the pandemic.
Disclaimer
This blog post is presented for informational purposes only. As always, consult a licensed attorney for specific, detailed advice about what activities are or are not allowed under the law. For further information, please feel free to set up a consultation for your 501(c)(3) at our website. We look forward to helping your organization!
Sources:
[1] Pa. Stat. Ann. 7252
[2]https://www.boardofappeals.state.pa.us