Anyone operating a nonprofit business in Tennessee needs to know the state regulations to avoid putting their organization in jeopardy. Nonprofits that do not follow Tennesse law may face fines -- or, ultimately -- dissolution. Tennessee law regulates how a nonprofit organization is registered, what nonprofit businesses or organizations can do with their profits, how the organizations can fundraise, and when they can avoid sales tax. The state also imposes annual reporting requirements on all nonprofits.
A Tennessee nonprofit must file its charter with the secretary of state's office to register the organization. If an organization does business within the state without filing its charter, it will face civil fines. The charter must include the following: the name and address of the nonprofit; a statement that the organization is not for profit; and a statement that the organization is a public benefit, mutual benefit, or religious organization. A mutual benefit organization serves the members of the organization, such as a golf club, whereas a public benefit organization exists to serve the public. Additionally, a nonprofit must designate a registered agent that will be responsible for accepting all legal documents on behalf of the organization. The charter may also include the names of the initial board of directors, and the purpose of the nonprofit.
Restrictions on Distributions
Tennessee law prohibits a nonprofit business from distributing profits to nonprofit directors or officers, but it does not prohibit directors from receiving reasonable compensation for services performed, or for the nonprofit to use profits to repay debts. Unlike for-profit corporations, a nonprofit business may use its profits only to further the charitable purpose of the organization. When the nonprofit dissolves, the assets must be distributed to another nonprofit business or government organization.
Nonprofit organizations that solicit more than $30,000 from the public annually are required to file a registration statement with the secretary of state's office. Every year after registration, the nonprofit must renew its application and submit a summary of financial activities. The organization must keep financial records on file, along with records of all fundraising activities. State officials may request to see these documents at any time. Further, Tennessee law prohibits charities from using "false or deceptive" practices when soliciting donations. For example, if a nonprofit claimed that a celebrity endorsed the organization, when in reality the celebrity knows nothing about the nonprofit, the state may impose a civil penalty on the organization.
Sales and Use Tax
To avoid sales and use tax, nonprofit organizations must apply for an exemption certificate from the Tennessee Department of Revenue. The exemption may be used to buy, free of sales tax, goods and services that the nonprofit will use or give away. With few exceptions, the exemption does not apply when the nonprofit resells goods for profit.
Every nonprofit must file an annual report with the Division of Business Services. The report is due on the fourth month following the close of the organization's fiscal year. For fiscal years that end in December, the report is due April 1st. The report must include updated contact information for the nonprofit, and a statement that it continues to operate as a mutual benefit, public benefit or religious organization.
- Tennessee Department of State; Division of Business Services; Filing Guide Nonprofit Corporations
- Tennessee Department of State: Charitable Solicitation Act
- Justia US Law: 2010 Tennessee Code; Title 48; Chapter 51 - General Provisions
- Tennessee Department of Revenue: Nonprofit Sales or Use Tax-Exempt Organizations - Explanation of Allowable Use of an Exemption Certificate
- Justia US Law: 2010 Tennessee Code 48-51-201 - Definitions
- Justia US Law: 2010 Tennessee Code 48-58-304 - Liability for unlawful distributions
Elizabeth Rayne earned her J.D. from Penn State University and has been practicing law since 2009, advising clients on issues ranging from employment law to nonprofit management. For two years, she served as a contributing editor for the "Vermont Environmental Monitor."