Form ST-2 and ST-5: how a Massachusetts 501(c)(3) buys tax-free

The two forms

The ST-2 is the club's Certificate of Exemption, issued by the Department of Revenue. The ST-5 is the Sales Tax Exempt Purchaser Certificate the club fills in and hands to the store. A vendor needs both: the ST-5, completed and signed, with a copy of the ST-2 attached.

Under Massachusetts General Laws c.64H §6(e) and DOR's AP 101, a sale to a 501(c)(3) is exempt when the organization presents a valid ST-2 and a properly completed ST-5, the goods are used for the organization's stated purposes, and the vendor keeps adequate records.

Getting the ST-2

1. 1.Have your IRS determination letter in hand. DOR's process starts from it.
2. 2.Complete the Application for Registration online through MassTaxConnect.
3. 3.Enter the federal identification number and organization name exactly as they appear on the IRS determination letter.
4. 4.If the club is a subordinate in an IRS group exemption, use the club's own EIN, not the parent's.
5. 5.Respond to any DOR request for more information within the time it gives.
6. 6.When the ST-2 arrives, file the original with the permanent records and give the treasurer and purchasing volunteers copies.

DOR's regulation excuses groups under the IRS $5,000 small-organization exception from the ST-2 requirement, but its application process is built around a determination letter. If your club has never applied to the IRS, check with DOR about how to document an exempt purchase before relying on it.

Using the ST-5 at the register

AP 101 describes two ways to fill it in. For an occasional purchase, check “Single Purchase Certificate” and list the items. If the club buys repeatedly from the same vendor, check “Blanket Certificate” and describe the items; one ST-5 then covers future purchases as long as the description stays accurate. The organization signs and dates the ST-5.

• Paper plates, supplies and equipment for club programs: generally exempt use
• Awards, banners and supplies for the team or school program: generally exempt use
• Spirit wear or candy bought to resell at a fundraiser: do not assume exempt; see the sales tax guide
• Personal purchases by a volunteer: never

Buying for the school: the Spring Fling example

DOR's regulation includes an example that fits PTOs exactly. Two high school PTOs each hold a “Spring Fling” with a band, flowers and a hotel banquet.

The PTO for a public high school holds no exemption itself. It can buy through or on behalf of the school by giving the vendor a Form ST-5 with a copy of the school's ST-2 if the school has one; if the school does not provide the forms, the PTO may itself fill out the ST-5 when buying on the school's behalf.

The PTO for a private 501(c)(3) high school, without its own exemption, gives the vendor a signed ST-5 with a copy of the private school's ST-2. In both cases the block of hotel sleeping rooms is still subject to the room occupancy excise; the sales tax exemption does not reach it.

Common mistakes at the register

Most ST-2 problems are small and avoidable. Vendors are required to keep the certificate and record each exempt sale, so a store may refuse the exemption if the paperwork is incomplete.

• Handing over the ST-2 without a completed, signed ST-5
• Using a blanket ST-5 for items it does not describe
• Using the club's certificate for a volunteer's personal purchase, even one they plan to be reimbursed for
• Assuming an expired ST-2 still works; check the expiration date
• Using the school's ST-2 for something the club is buying for itself rather than for the school

How long it lasts, and what can go wrong

ST-2 certificates are valid for ten years. If nothing about the organization has changed, AP 101 says DOR will issue a new certificate about thirty days before the old one expires. If the club changes its name, merges, or gets a new EIN, it should request an amended certificate or re-apply.

If DOR finds that an organization was granted the exemption in error, it can revoke the ST-2, and the organization must return it. A revoked IRS exemption undercuts the ST-2 too, which is one of the knock-on effects of missing three years of 990 filings.