Most nonprofits are 501(c)(3) organizations, which means they are formed for religious, charitable, scientific, literary, or educational purposes and are eligible for federal and state tax exemptions. To create a 501(c)(3) tax-exempt organization, first you need to form a South Dakota nonprofit corporation. Then you apply for tax-exempt status from the IRS and the state of South Dakota. Here are the details.
First, you need to form a nonprofit corporation under South Dakota state law (Chapter 47-22 of the South Dakota Codified Laws ("SDC")).
You must have at least three directors on your initial board in South Dakota. Your initial directors are named in your articles.
The name of your nonprofit corporation must be distinguishable from any other corporate name on file with the Secretary of State. To see if your proposed name is available, you can search South Dakota's online business name database or you can call the Secretary of State's office. You can reserve a corporate name for 120 days by filing an application with the Secretary of State.
You create your nonprofit entity by filing a certificate of incorporation with the South Dakota Secretary of State and paying the $30 filing fee (as of August 2020). Your articles of organization include basic information such as:
You must have three or more incorporators in South Dakota. See SDC §47-22-6 for additional information about your articles.
The Secretary of State has a fillinable articles of incorporation form for nonprofits on its website which you can use to create your nonprofit corporation. Complete and file your articles following the instructions provided.
The articles form on the Secretary of State's website does not include language required by the IRS to obtain tax-exempt status. To receive 501(c)(3) tax-exempt status from the IRS, you'll need to have additional specific language in your articles, including:
For more information on IRS requirements for tax exemption, see IRS Publication 557, Tax-Exempt Status for Your Organization, available on the IRS website. Make sure you include both the state and federal tax-exempt required language in the articles you create.
Before you file your articles of organization, you'll need to have bylaws that comply with South Dakota law. Your bylaws contain the rules and procedures your corporation will follow for holding meetings, electing officers and directors, and taking care of other corporate formalities required in South Dakota. Your bylaws do not need to be filed with the state -- they are your internal operating manual.
Your first board meeting is usually referred to as the organizational meeting of the board. The board should take such actions as:
After the meeting is completed, be sure to create minutes that accurately record the actions taken by the board. You should set up a corporate records binder for your nonprofit to hold important documents such as articles of incorporation, bylaws, and minutes of meetings. For more information, as well as minutes forms, consent forms, and other resolutions, see Nonprofit Meetings, Minutes & Records, by Anthony Mancuso (Nolo).
An EIN is a unique tax identification number assigned by the IRS. You will use the EIN on your organization's tax returns, tax exemption applications, and other filings with the government. The EIN application is free, and you may submit your application online.
You do not need a statewide business license to operate a nonprofit in South Dakota. However, depending on your services and your location, you may need one or more other permits. Check with your town and county licensing divisions to determine the requirements for your organization.
To keep your nonprofit in good standing, you must file an annual report with the Secretary of State and pay the $10 filing fee (as of August 2020). In the report, you will provide basic information about your organization, such as the nonprofit's address, registered agent, and the names and addresses of the directors. You may mail in a print report or file online.
Now that you have created your nonprofit corporation, you can obtain your federal and South Dakota state tax exemptions. Here are the steps you must take to obtain your tax-exempt status:
To obtain federal tax-exempt status from the IRS, you will need to complete and file IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This long and detailed form asks for lots of information about your organization, including its history, finances, organizational structure, governance policies, operations, activities, and more. For line-by-line instructions on how to complete the Form 1023, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
Smaller nonprofits may be eligible to file Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. This is a much simpler, shorter form that is filed online. Only smaller nonprofits--those with projected annual gross receipts of less than $50,000 and total assets of less than $250,000--are eligible to use the streamlined 1023-EZ application.
See the IRS website for more information on the Form 1023 and Form 1023-EZ filing requirements.
There is no corporate income tax in South Dakota. Your nonprofit may be eligible for exemption from other state taxes, including sales, use, and property taxes. Check with the South Dakota Department of Revenue for information on how to file for exemptions from other state taxes.
South Dakota does not require nonprofits to register with the state before soliciting contributions from state residents. You may have to register your nonprofit in other states before you engage in any out-of-state solicitations.