Taxes and Tax-Exemption


Tax Information for RSOs

  • A RSO must be a “not-for-profit” organization
    • A not-for-profit organization must use any income or profit for organizational purposes, not for any individual or commercial gain
      • Note that this is not the same definition as used for state and federal “non-profit” purposes
    • A RSO does not obtain exemption from state or federal income or sales tax simply by registering as a student organization
    • Do not confuse the not-for-profit criteria as defined by your status as RSO with the federal Internal Revenue Service (IRS) eligibility criteria for non-profit organizations
    • In order to be considered non-profit by the federal government, in most cases you must prepare and submit an application form
  • The IRS has established eligibility criteria for varying kinds of non-profit organizations
    • There are different application forms for different types of non-profits
    • Carefully analyze which type of non-profit status is most appropriate for your RSO
    • Different types of non-profits have different requirements and privileges
      • For example, not all types of non-profit status permit the organization to accept tax-deductible contributions
    • See below for additional discussion of the different types of non-profits
  • If it is determined that your organization meets the non-profit eligibility criteria, the IRS will issue a Letter of Determination which will specifically identify the type of tax-exempt status granted to the organization
    • If determined to be non-profit by the federal government, it is most likely that the state of Wisconsin will also determine your organization to be non-profit for state tax purposes

Should our RSO Obtain Federal/State Non-Profit Status?

Three main benefits of non-profit status are:

  1. Exemption from federal and state income tax
  2. Ability of certain non-profits to make purchases without paying state sales tax
  3. Ability for certain non-profits to receive tax-deductible contributions

In most cases we DO NOT encourage student organizations to apply for federal non-profit status because:

  1. The process involves follow up paperwork annually and most organizations will not find themselves in situations of needing formal federal or state non-profit status
  2. Since many RSOs are ineligible for 501(c)(3) status, filing for non-profit status will not enable the RSO to receive tax-deductible contributions or make purchases free of sales tax (see below)
  3. Securing federal non-profit status for tax purposes is a complicated process, which requires an understanding of the technical definitions and requirements of non-profit organizations for tax purposes

If your organization, as its own entity, wishes to apply for federal non-profit status, contact the federal IRS and the Wisconsin Department of Revenue, or consult your private tax advisor

  • Information may be found on the IRS website
  • Enter “Publication 557” in the “Search” box for a description of the various 501(c) non-profit organizations
  • If you wish to apply for 501(c)(3) status, enter “1023” in the Search box
    • For 501(c)(4) or 501(c)(7) status, enter “1024”

Law & Entrepreneurship Clinic, University of Wisconsin Law School

The LEC offers free legal services to help entrepreneurs and small business owners realize their potential. Potential clients will be interviewed to evaluate their legal needs. Should the LEC decide to provide legal services, a letter of engagement will be entered into between the client and clinic defining the scope of services.  You can contact the LEC at entrepreneurhelp@law.wisc.edu.


Marquette Legal Initiative for Nonprofit Corporations

The M-LINC can assist organizations with their legal questions. Advice ranges from corporate, tax, employment and intellectual property questions to the application for nonprofit status.  M-LINC is a free legal service for small and mid-sized Wisconsin 501(c)(3) organizations.


State and Federal Income Taxes

A RSO is subject to federal and state income taxes on the income it generates or receives (including donations) unless it qualifies as a non-profit organization under federal and state law There are several different varieties of non-profit organizations that qualify for exemption from federal tax on their income.

  • Most RSOs would likely qualify for federal income tax exemption as a 501(c)(4) “social welfare” organization or a 501(c)(7) “social club.”

RSOs that exist and are operated for charitable purposes, as defined by the IRS, may qualify as a 501(c)(3) “charitable” organization. “Charitable” organizations must generally file an application with the IRS for tax exempt status only if the organization receives/earns MORE than $5,000.00 in gross annual receipts per year from outside sources (interest bearing checking accounts, investments, fund-raisers, donations, etc.). However, even if an RSO receives less than $5,000 in annual gross receipt, it may wish to file an application for tax-exempt status so that it receives a “determination letter” from the IRS, which confirms the RSO is tax exempt. This can be important for, among other things, the ability to obtain a sales and use tax exemption certificate (see below).

RSOs that are exempt from federal income tax under either of the above categories are also normally exempt from state income tax. There are special rules for “unrelated business income” that sometimes require non-profits to pay federal and state income taxes on their income that is generated by activities unrelated to their exempt purpose.

  • Ask your parent chapter if your subsidiary is covered by the parent/affiliated organization’s tax-exempt status.
    • If your organization is covered by the parent organization's tax exempt status, obtain a copy of the parent organization's IRS Determination Letter which shows your organization as a subsidiary of the parent organization.

An RSO that has obtained non-profit status must file Form 990 annually

  • State law also requires non-profit corporations to file an annual information return 
  • Other filing requirements may apply if the RSO generates “unrelated business income”

Exemptions from paying sales tax on purchases

RSOs are not automatically exempt from paying sales tax.  
RSOs must apply to the Wisconsin State Department of Revenue (DOR), to obtain a sales tax exemption certificate.

  • Apply by filling out the Application for Wisconsin Sales and Use Tax Certificate of Exempt Status form.
    • To find this form, go to the “Search” box of DOR’s website Enter “S-103” The second page of the S-103 application form lists the purpose of the exemption status with examples of non-profit organizations that do and do not qualify for exemption from sales tax and instructions for filling out the form.
  • In most cases, only those student organizations that qualify for federal 501(c)(3) status will qualify for exemption from Wisconsin sales tax on purchases.
    • If you have federal 501(c)(3) non-profit status, you will be asked to include the Determination Letter from the IRS as part of the documentation with your application.
    • If your organization has not filed for 501(c)(3) status and not obtained a Determination Letter, it will need to demonstrate to the DOR that it meets the basic requirements for 501(c)(3) status in order to obtain the sales tax certificate.
    • Your organization may use the University's sales tax exemption certificate for its purchases ONLY in the unusual situation where your organization is controlled (most likely meaning completely funded) by a university department. The University’s sales tax exemption certificate should not be used by an RSO unless specifically authorized by a university department.

Collecting State Sales Tax

Student organizations are exempt from collecting state and county sales tax on “occasional sales” of items sold if the RSO:

  1. Is considered a nonprofit organization, per the Department of Revenue's definition. For this purpose, the definition of “non-profit” includes most 501(c)(3), 501(c)(4) and 501(c)(7) organizations.
  2. Does not have or is not required to have a seller's permit
  3. Entertainment is not involved (either no admission is charged, or all payments to entertainers at the event add up to less than $500. Note: the $500 threshold increases to $10,000 beginning with sales made in calendar year 2017).
  4. Has had 20 days or less of sales in the calendar year OR has had earned less than $25,000 in sales in the calendar year. Beginning with sales made in calendar year 2017, these limits increase to 75 days and $50,000, respectively.

If a particular sale does not meet the above criteria, the RSO is responsible for collecting and remitting state sales tax to the Wisconsin State Department of Revenue.  For additional information about sales tax, visit Wisconsin DOR’s website.  Consult Publication 206, Sales Tax Exemptions for Nonprofit Organizations, and Publication 204, Sales and Use Tax Information for Colleges, Universities, and Technical Colleges.

Can our RSO receive donations that are tax-deductible to the donor?

RSOs are not automatically eligible to receive tax-deductible contributions and instead must qualify for federal 501(c)(3) status.  RSOs that do not qualify for 501(c)(3) status are obligated to inform potential donors of the non-deductibility of any donations.  In unusual circumstances, a university department may be willing to accept a donation on behalf of an RSO, or with respect to an event sponsored by an RSO.

  • In that case, the donation would be deductible to the donor since it is made to the university, and not the RSO.
  • RSOs must be very careful to make sure the department has formally agreed to accept the donation in these circumstances, since there are university forms that need to be completed by the department and receipts that must be provided by the university to the donor in order for the gift to be completed.