Legal Question in Business Law in California

Setting up an activity (church, hospital, school, business, etc.) as a nonprofit is really a two-step process. The first is to create a nonprofit entity, usually a corporation. This is relatively easy, although the entity thus created will have some operational and fiscal limitations imposed by law. However, a nonprofit entity cannot accept donations nor can the donors deduct those donations until the entity has also applied for and received a designation from the Internal Revenue Service. The most common of these is the familiar "501(c)(3)" tax-exempt nonprofit designation. Obtaining IRS tax-exempt status is very difficult and involves a complex application and screening process. Without more details, I cannot say your idea has no chance of meeting IRS criteria, but I'd say it's very doubtful.

The other attorney is right on point here. Obtaining tax-exempt status under 501(c)(3) is not easy and involves a series of steps. Consult with a good nonprofit attorney in your area for specific advice.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

I'm not sure what is more amazing to me, how little you understand about what a tax exempt organization is, or how badly the other attorneys have answered your question. It is absolutely impossible for you to turn an automobile interior business into a tax exempt organization. Tax exempt organizations are tax exempt because they are not for profit and they are for a charitable or other public benefit purpose. Your business to make you money is never going to qualify. And, no, you can't make it non-profit by paying yourself a salary that eats up all the profits and leaves the business as a non-profit. First, the IRS will refuse or revoke non-profit status if the people running the organization get paid too much of the proceeds of the business, even if the business is operated for a public benefit purpose. Second, an auto interiors business is never going to qualify as a charitable purpose. Now if you want to work for free, and donate all your profits to a charitable purpose, then maybe you could get non-profit status for your company. But I doubt that is what you had in mind.

The one thing you CAN do to reduce your tax burden is to start charging your customer sales tax (which technically you are supposed to be doing anyway; even if you already paid tax as the end user, by reselling the tax technically comes due again on your sale). If you go through the Francise Tax Board process to become a reseller, the people you buy your materials, etc. from will no longer charge you sales tax. You then have the choice to either separately charge the tax to your customers, or just build it into your estimate and tell them "tax included."

You are running a 'for profit' business. It will be taxed as such. If you were doing so only incidentally as minor part of fund raising as a religious or charitable organization, it would possibly be covered by that organizations' 'non-profit' status. Yours is not.