Frequently Asked Questions

How do we become a non-profit organization in Michigan?

Application for incorporation as a non-profit in the State of Michigan is one of the most important for a friends group to make as it can be the basis for limiting the personal liability of officers, directors, and members for acts of the corporation or each other. You can learn more about it at:

Web-site: http://www.michigan.gov/cis/

Do we need to pay sales tax on our book sale proceeds?

Your organization needs to file a Sales and Use Tax report by February 28 each year even if no taxes are owed. If you are recognized as a non-profit in the state of Michigan, there is an exemption from sales tax for up to $5,000 of sales. However if your sales exceed that amount, you will owe the tax on the entire amount of your sales.

Information on sales tax reporting that can be found at:

Web-site: http://www.michigan.gov/treasury/

What is a charitable trust license and how do we know if we need to apply for one?

A charitable trust license is a license to solicit charitable contributions. An all volunteer organization which makes a financial statement available to the public may be exempt from this requirement. However, as soon as such an organization receives in excess of $8,000 in contributions during a 12 month period, they must apply for a license within 30 days.

Do we need to apply for Federal Tax Exempt status?

An organization does not need to apply for the 501 (C)(3) tax exempt status unless they expect to receive generous donations from individuals or companies that want to write the donations off on their taxes or if the organization plans to apply for a grant and is unable to make that application under the umbrella of another 501 (C)(3) organization or a public entity, such as the library.

Referring to the tax exempt status, would it require both state and federal forms to be exempt from both taxes?

Once you are registered as a 501 (C)(3) tax exempt organization, you report annually on form 990 if your income exceeds the threshold for having to report, currently $25,000. As you are not filing a corporate income tax report with the IRS, you do not need to file an income tax report with the state.

Is there a need for liability insurance for Board members of Michigan non-profit organizations such as Friends of the Library groups?

In general, the officers, directors and members of nonprofit corporations which have been incorporated in accordance with the Michigan Nonprofit Corporation Act (the Act), 1982 PA 162, MCL §450.2101 et seq.,  are not
personally liable for the acts of the corporation or each other. Any liability is generally limited to the assets of the corporation. The Act authorizes nonprofit corporations to assume much of the liability of their directors and to indemnify their officers and directors for certain acts.

The personal liability of members of unincorporated associations on contracts made by, for and on behalf of the association is "joint and several." This means that all the members, collectively, or any one member may be liable for the entire value of the contracts of the association.
Based on this, it may be a sound decision for an unincorporated friends group to seek liability insurance.

If you have questions you would like to have responses to, please e-mail them to FOMLquestion@gmail.com