Here We Go Again

Nonprofit organizations in Rhode Island take note: if you have an exemption certificate that allows your organization to avoid paying sales tax, the renewal date is on the horizon.

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But don’t expect the Division of Taxation to remind you that it’s about to expire.

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“Their ability to communicate proactively a coherent process is severely lacking,” said the Rev. Patrick W, Notley, who The Hummel Report profiled four years ago when a new law requiring nonprofits to register with the state for the first time took effect.

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Notley, pastor at Barrington Presbyterian Church, said the state had four years to improve a system that it mishandled in 2021. But his interaction with The Division of Taxation has prompted more questions than provided answers when he began the renewal process for his church in April.

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Notley said that the Division of Taxation has been a step behind – four years ago, and as the renewals are coming due this year.

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The registration goes back to 2017 – when the General Assembly passed a law requiring all nonprofits to file paperwork with the state, along with a $25 fee, to continue receiving a tax-exemption certificate that many had had for decades.

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But any nonprofit formed before 2017, like Barrington Presbyterian Church, had until 2021 to file. The Division of Taxation mailed a reminder with a notice that the Secretary of State’s office sends out reminding corporations to send in their annual reports. Several nonprofits we contacted four years ago said they had overlooked the second page of the mailing.

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This year, there was no reminder.

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“Each exemption certificate issued to a qualifying organization has an expiration date that is four years from the date of issuance printed on the certificate,” Paul Grimaldi, a spokesman for The Department of Revenue, wrote this week, responding to a series of questions from The Hummel Report via email. 

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“The Division does not send reminders due to a number of reasons, including volume of tax work and need to prioritize, capacity, programming, and it is a taxpayer benefit that should be managed by the taxpayer,” Grimaldi said, adding that the state has done “extensive outreach” to certified public accountants and tax preparers.

Notley had a reminder in his calendar for the renewal and contacted the Division of Taxation two months ago. He made a series of phone calls but received conflicting information about the process.

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Taxation told him to go online to find the form, but Notley discovered two different forms posted. “The form we now have to fill out is the same for any nonprofit agency whether they are renewing or seeking tax exempt status,” he said.

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“The assumption from this form is you have no standing or status, and you have to prove that you’re a nonprofit. The fact you have a current tax-exempt status means nothing,” he added.

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The pastor had to send in the church’s bylaws, proof from the Internal Revenue Service of tax-exempt status, and articles of incorporation – which in the case of the Presbyterian Church means that part of the paperwork was based on a nationwide incorporation.. The paperwork totaled about 25 pages.

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Notley said it made no sense because he had submitted much of the same documentation in 2021.

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Grimaldi’s response: “The Division applies the same standard to all applicants to ensure consistent treatment. At times, an organization may change its structure or practices and no longer qualify for the exemption. The Division requires documentation to verify that the exemption is still supported by statute at the time of application or renewal.”

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Then there’s the $25 fee. Notley said he has no problem with the nominal charge but discovered during his series of phone calls that it was no longer required. But each of the forms online still listed the $25 fee.

Gov. McKee, as part of his budget last year, proposed eliminating the $25 fee nonprofits had to pay once every four years to register (it brought in $43,200 four years ago with the original wave of registrations). The General Assembly agreed, and the fee was dropped by the state effective Jan. 1, 2025.

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But the Division of Taxation didn’t change the form until May. Grimaldi wrote: “The May 2025 form currently posted online no longer lists a requirement for the $25 filing fee. We did not process any 2025 applications with this fee per statute, while the form was in the process of being updated.” He offered no explanation why it took the state a year to update the form.

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After The Hummel Report story ran in 2021, the state extended the deadline to register by 60 days, since many nonprofit organizations were unaware of the new filing requirements. That means there is no hard deadline this year. It is based on when the organization sent in its paperwork in 2021.

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Grimaldi said the state issued 1,449 tax exempt certificates four years ago.

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When we first spoke with Notley last month he had not heard from the Division of Taxation whether it had received his paperwork, or when the new certificate might arrive. That posed a problem as the church is involved in ministries where it purchases supplies with the tax-exempt certificate. And that was expiring at the end of this month. One vendor said because the date was so close he could not honor the certificate until a new one was issued.

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The certificate finally arrived several weeks ago.

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“The one thing that I notice from the old certificate to the new one is that we essentially lost 18 days before we will have to renew in 2029,” Notley said. “Our certificate, which expires this month, does so on June 25, 2025; the new certificate that expires in 2029 does so on June 7, 2029.  The only thing I can figure out is that the certificate is designed to expire four years and one day after it is issued instead of expiring four years after the expiration date of the current certificate.”

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And he has this suggestion for the Rhode Island lawmakers, noting that Massachusetts - which politicians often use as a comparison - only requires its nonprofits to renew every decade. “We have to do this nonsense every four years in Rhode Island? Let’s change that.”

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The Hummel Report is a 501(c)(3) nonprofit organization that relies, in part, on donations. For more information, go to HummelReport.org. Reach Jim at Jim@HummelReport.org.