Let’s take a closer look at these topics:
Sales Tax
All states that impose sales taxes have remote sales tax laws. In June 2018, the Supreme Court blessed a S.D. law requiring many out-of-state sellers with no physical presence in the state to collect sales tax from S.D. buyers. Since that decision came out, states jumped on board and enacted their own laws because states see this as a revenue raiser. Sales by small businesses are exempt, although the states don’t have the same dollar or minimum-transaction threshold.
Four states have no state or local sales tax: Del., Mont., N.H. and Ore. Although Alaska doesn’t have a state sales tax, it does have local sales taxes.
Penalties
IRS issues lots of its guidance in the form of frequently asked questions. And taxpayers can rely on the FAQ to escape accuracy-related penalties. FAQ do not rise to the level of legal authority and cannot be cited as precedence to support the merits of a taxpayer’s position. But taxpayers who can demonstrate that they relied on FAQ in good faith, and that such reliance was reasonable based on all the facts and circumstances, have a valid reasonable-cause defense and won’t be subject to the negligence penalty or other accuracy-related penalties.
Exempt Groups
IRS is stingy on granting homeowner associations tax-exempt status as social welfare organizations, finding that many are organized or operated to mainly serve the private interests of the group’s members. To qualify for exemption, the association must serve the public good or community over a sufficiently wide area, must have its facilities and activities open for the use and enjoyment of the public, and cannot perform exterior maintenance activities on private dwellings.
Take this example: The agency denied tax exemption to an association because it is a gated community and restricts the public from accessing its grounds. The group’s benefits were limited to the homeowners in the community, their guests and members of an unrelated country club in the gated community. The association challenged IRS’s denial of its tax-exempt application, but to no avail. The Tax Court agreed with IRS that the association’s facilities and activities are primarily for the use and enjoyment of the group’s members and their guests, and don’t benefit the public. As such, it isn’t tax-exempt (Mira Vista Homeowners Association, TC Memo. 2025-102).
Homeowner associations ineligible for tax exemption can file Form 1120-H. They won’t owe tax on dues paid by the owners. But other operating income is subject to a 30% flat tax, as is net investment income, if the total exceeds $100. If they elect not to file the 1120-H, then they must generally file Form 1120.
Bad news for a nonprofit that operates too much like a for-profit business. It’s not a tax-exempt 501(c)(3) organization, the Tax Court decides. The group was purportedly organized to help educate children, but its actual purpose was to act as a literary agent for its founder’s projects. It charged for autographs, books, CDs and subscriptions, and sold tickets to events. It conducted commercial activities in a manner akin to a private business, which is a substantial nonexempt purpose. And a big part of its earnings flowed directly to the personal benefit of its founder, which is impermissible (Coaches 101 A NJ Nonprofit, TC Memo. 2025-106).