New Hawaii law creates filing requirements for nonprofits

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A Hawaii law – which is set to take effect on July 1 – could cause many nonprofit organizations to lose their tax-exempt status, according to Pacific Business News.

The paper reports that the new excise tax law requires all businesses and nonprofits – regardless of their tax-exempt status – to register to do business in the state and file state tax returns to claim their exemption. The legislation aims to crack down on some businesses, that officials say are “cheating the system,” by collecting the excise tax from customers and failing to pass that money on to the state.

To provide a stronger basis of enforcement, the law also makes a company’s officers, members or bookkeepers personally liable for the taxes owed if the company fails to file a return or pay what they owe, according to the paper. Nonprofits that don’t file could lose their tax exempt status.

Officials told the paper that they expect the new law to raise $15 million during the next fiscal year. Some opponents have said that the bill will catch many by surprise.

The situation is very similar to an IRS regulation that has affected many charitable organizations nationwide. The agency says many nonprofits have not filed their tax returns in the last three years, which could cause them to lose their tax exempt-status. The IRS has promised leniency to those organizations, and says it will release more guidance about the situation in the near future.