North Carolina Nonprofit Sales Tax Refund: How Form E-585 Works

Introduction

A qualifying North Carolina nonprofit generally does not receive a blanket exemption from sales and use tax. Instead, the organization usually pays tax when it makes a purchase and may later request a refund for eligible purchases used in its nonprofit activities.

The refund is claimed using Form E-585, Nonprofit and Governmental Entity Claim for Refund. Eligibility, qualifying purchases, county reporting, documentation, and filing deadlines all affect the amount a nonprofit may recover.

What Is the NC Nonprofit Sales Tax Refund?

The North Carolina nonprofit sales tax refund is a reimbursement program. It is not permission to make every purchase tax-free.

A qualifying nonprofit may request a refund of eligible North Carolina sales and use tax that it paid on purchases used to carry out its nonprofit work. The claim may include:

• Sales tax paid directly to retailers.
• Use tax paid directly to the North Carolina Department of Revenue.
• Certain sales tax paid indirectly through a contractor on qualifying construction materials and fixtures.

The organization generally cannot claim tax that it collected from customers and sent to the Department of Revenue. The refund is intended for tax the nonprofit paid on eligible purchases.

Who May Qualify for a North Carolina Nonprofit Tax Refund?

Eligibility depends on the organization’s legal status, activities, and classification under North Carolina law.

Potentially qualifying organizations may include:

• Certain organizations exempt from federal income tax under Section 501(c)(3).
• Nonprofit and public hospitals.
• Certain volunteer fire departments.
• Certain volunteer emergency medical services organizations.
• Qualified retirement facilities.
• Certain university-affiliated nonprofit organizations.
• Certain nonprofit single-member limited liability companies.

Being recognized as a federal 501(c)(3) organization does not automatically guarantee eligibility for the North Carolina refund. Some nonprofit categories are excluded, including certain organizations focused primarily on membership benefits, community improvement, or other public and societal activities.

The North Carolina Department of Revenue may request documents showing the organization’s purpose and status, such as:

• Federal determination letter.
• Articles of incorporation.
• Bylaws.
• Constitution or governing documents.
• Information describing the organization’s activities.

Before submitting its first refund claim, a nonprofit generally must apply for a nonprofit sales and use tax refund account ID using Form E-585NPA. After receiving the account ID, the organization uses Form E-585 to request refunds.

What Purchases May Be Refunded?

A nonprofit may generally claim a refund for eligible taxable purchases used in its nonprofit activities. The organization must have paid the tax and must be able to connect the purchase to its qualifying work.

Direct purchases

Direct purchases may include taxable items bought from retailers, such as:

• Office equipment.
• Furniture.
• Computers and other technology.
• Office and program supplies.
• Appliances.
• Certain taxable digital property.
• Other tangible personal property used by the nonprofit.

Invoices and receipts should show the purchase date, items purchased, purchase price, and amount of tax paid.

The nonprofit should also be able to explain how the items were used in its nonprofit activities. A purchase made for the organization’s own use may qualify, while an item bought for resale generally follows different rules.

Purchases made through a contractor

A nonprofit may be able to claim tax paid indirectly through a real property contractor. This can apply to materials, supplies, fixtures, and equipment that:

• Were purchased by the contractor.
• Were used in a qualifying project for the nonprofit.
• Became part of or were permanently attached to a building or structure owned or leased by the nonprofit.

Examples may include:

• Sheetrock.
• Roofing materials.
• Plumbing fixtures.
• Electrical fixtures.
• Flooring.
• Building materials incorporated into a renovation.

The nonprofit should obtain a certified statement from the contractor. The statement should identify the materials, purchase date, retailer, invoice number, purchase price, tax paid, project, and applicable county.

Items used temporarily by the contractor generally do not qualify. Examples may include:

• Contractor tools.
• Scaffolding.
• Fuel.
• Equipment rentals.
• Temporary forms.
• Repair parts for contractor equipment.

What Purchases and Taxes Are Not Refundable?

Certain taxes and expenses are generally excluded from the nonprofit refund. Common exclusions include:

• Electricity.
• Piped natural gas.
• Telecommunications and related services.
• Video programming.
• Prepaid meal plans.
• Purchase, lease, rental, or subscription of motor vehicles.
• Local occupancy tax.
• Local prepared food and beverage tax.
• Scrap tire disposal tax.
• White goods disposal tax.
• Employee travel reimbursements.
• Alcoholic beverages.
• Sales tax collected from customers and remitted by the nonprofit.

Food purchases require special attention. Depending on the type of food and the applicable rate, amounts may need to be reported in the appropriate state, county, food, or transit tax category. Local prepared food and beverage taxes generally are not included in the nonprofit refund.

A nonprofit should also avoid using a resale certificate for items it intends to use or consume. A resale certificate generally applies to purchases that will be resold. Using one improperly may result in additional tax, penalties, or interest.

How Does a Nonprofit File Form E-585?

Form E-585 is filed for a six-month period. A nonprofit should submit a separate form for each six-month claim period rather than combining multiple periods on one form.

The filing process generally includes the following steps:

1. Gather purchase records. Collect invoices, receipts, use tax records, and contractor statements.
2. Separate eligible and ineligible purchases. Remove excluded expenses and purchases unrelated to the nonprofit’s qualifying activities.
3. Calculate tax paid directly to retailers. Include eligible sales tax shown on vendor invoices.
4. Calculate qualifying contractor-paid tax. Use certified contractor statements to support indirect tax.
5. Include qualifying use tax. Report use tax paid directly to the Department of Revenue.
6. Separate state and local tax. Identify food, county, and transit tax amounts as required.
7. Allocate local tax by county. Use the appropriate county schedule when purchases involve more than one county.
8. Submit Form E-585 by the applicable deadline.

The nonprofit should retain its supporting records even if it does not mail them with the refund claim. The Department of Revenue may request them during its review.

When Is Form E-585 Due?

North Carolina nonprofit refund claims are generally filed twice each year:

For example, a nonprofit claiming eligible purchases made from January 1 through June 30, 2026, generally must file by October 15, 2026. Purchases made from July 1 through December 31, 2026, generally must be claimed by April 15, 2027.

A refund claim filed more than three years after its due date may be denied as untimely. Nonprofits should not wait until the deadline to organize records, particularly when purchases were made at multiple locations or through several contractors.

How Are Purchases in Multiple Counties Reported?

A nonprofit with purchases in more than one North Carolina county may need to attach Form E-536R, Schedule of County Sales and Use Taxes for Claims for Refund.

County tax is generally assigned based on where the item was delivered or where it could first be used. The retailer’s address is not always the correct county.

For example:

• An item picked up at a retail store may be assigned to the county where it was picked up.
• An item shipped to the nonprofit’s office may be assigned to the county where the office receives it.
• Materials delivered to a construction site may be assigned based on the project location.

The same retailer may appear in more than one county if the nonprofit received different purchases at different locations.

Accurate county reporting is important because local sales tax rates vary. A nonprofit should maintain a purchase schedule showing the delivery or use location for each item included in the refund claim.

Refund Caps

North Carolina places annual limits on certain nonprofit refunds. For a nonprofit entity, the aggregate refund for a state fiscal year generally cannot exceed:

• $31.7 million for state sales and use tax.
• $13.3 million for food, county, and transit sales and use tax.

These are annual caps covering both six-month claim periods. They are not limits based on the nonprofit’s gross receipts or the number of purchases it makes.

Special hospital rules

Beginning July 7, 2026, nonprofit hospital systems and their affiliates generally are treated as one entity when applying the refund caps. Similar aggregation rules may apply to hospital authorities, public hospitals, and related facilities.

The University of North Carolina Health Care System has special rules that may allow certain component units, affiliates, and managed entities to be treated separately. Hospital systems should review their organizational structure and the applicable purchase dates before filing separate claims.

What Records Should a Nonprofit Keep?

A nonprofit should maintain records that support both its eligibility and the amount of the refund requested.

Important records may include:

• Vendor invoices and receipts.
• Proof that sales or use tax was paid.
• Use tax returns and payment records.
• Contractor-certified statements.
• Construction contracts and project records.
• County-by-county purchase schedules.
• Documentation showing where items were delivered or used.
• Federal tax-exemption determination letter.
• Organizational documents.
• Records showing how purchases supported nonprofit activities.
• Copies of previously filed refund claims.

Invoices and receipts generally do not need to be submitted with Form E-585 unless requested. However, the nonprofit should keep them for at least three years beyond the later of the claim’s due date or filing date.

Common Form E-585 Mistakes

The most common mistakes include:

• Treating the refund as a blanket purchase exemption.
• Assuming every 501(c)(3) organization automatically qualifies.
• Claiming tax paid on excluded items.
• Including tax collected from customers.
• Claiming employee travel reimbursements.
• Failing to obtain contractor-certified statements.
• Reporting county tax based on the retailer’s address instead of the delivery or use location.
• Combining two six-month claim periods on one Form E-585.
• Failing to separate state tax from food, county, and transit tax.
• Omitting Form E-536R when purchases involve multiple counties.
• Filing after the October 15 or April 15 deadline.
• Failing to consider hospital-affiliate aggregation rules.
• Using a resale certificate for items the nonprofit will use itself.

Organized accounting records can make the process easier, especially for nonprofits with offices, programs, or construction projects in multiple North Carolina counties.

Final Takeaway

Form E-585 can provide a valuable refund opportunity for an eligible North Carolina nonprofit, but it is a reimbursement process—not a blanket sales tax exemption. The organization must confirm its eligibility, identify qualifying purchases, exclude nonrefundable expenses, allocate local tax correctly, retain supporting records, and file by the applicable deadline.

Stancil CPA can help your nonprofit organize its records, evaluate qualifying purchases, and prepare for the North Carolina refund process. Schedule a consultation to discuss your organization’s needs.