California’s tax-exempt paperwork runs on three forms. Nonprofits seeking exemption from state income and franchise tax file Form FTB 3500 or the streamlined Form FTB 3500A with the Franchise Tax Board, and businesses buying inventory for resale use Form CDTFA-230 to avoid sales tax at the point of purchase. Which form applies depends on what you are trying to exempt and, for nonprofits, whether you already hold a federal determination letter.
FTB 3500 or FTB 3500A: Which One You File
Form FTB 3500 is the full application for California income tax exemption under Revenue and Taxation Code Section 23701. Any organization can use it, and the Franchise Tax Board currently averages about six months to process one.1Franchise Tax Board. 2025 Instructions for Form FTB 3500 Exemption Application Booklet2Franchise Tax Board. Tax News November 2025
Form FTB 3500A is the shorter option, available only to organizations that already hold a federal determination letter under IRC Section 501(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), or (c)(19). If you have no federal letter, or your California exemption was revoked in the past, you cannot use 3500A and must file the full 3500 instead. Processing time for 3500A averages about four months.3State of California Franchise Tax Board. 2025 Instructions for Form FTB 3500A – Submission of Exemption Request2Franchise Tax Board. Tax News November 2025
Neither form carries a filing fee. Without a granted determination letter, a nonprofit corporation is taxed exactly like a for-profit corporation and owes at least the $800 annual minimum franchise tax.4Franchise Tax Board. FTB 927 Publication Introduction to Tax-Exempt Status
What to Attach
Form 3500A is simple: the completed form plus a copy of the federal determination letter. Form 3500 is heavier, and the attachments track how the organization is structured.1Franchise Tax Board. 2025 Instructions for Form FTB 3500 Exemption Application Booklet
- Incorporated organizations attach articles of incorporation and all amendments stamped by the California Secretary of State, plus bylaws.
- Unincorporated associations attach a constitution, articles of association, or other governing document signed by the board, plus bylaws.
- Trusts attach the trust instrument, any amendments, and the federal exemption determination letter.
- LLCs attach the articles of organization stamped by the Secretary of State and the operating agreement. A foreign LLC also attaches Form LLC-5.
Every applicant includes financial data. An organization operating for at least a year with federal exempt status can attach its last three years of Form 990 series returns. Organizations that file the federal e-Postcard (990-N) instead have to prepare their own detailed financial statement, because the e-Postcard contains no financial data. New or not-yet-active organizations submit a proposed budget.
Two clauses in your articles of incorporation cause most rejections: a purpose clause limiting the organization to exempt activities, and a dissolution clause directing remaining assets to another exempt purpose. If the FTB needs more information during review, it sends a written request, and the review clock pauses until you reply.
Annual Filings After You’re Approved
Getting the determination letter is the start, not the finish. California enforces exemption through annual filings, and skipping them can pull the status back.
FTB Form 199 or 199N
Most exempt organizations file either Form 199 or the electronic FTB 199N each year. Gross receipts of $50,000 or less means the 199N e-Postcard; above $50,000, the full Form 199. Churches, religious orders, political organizations, and certain government-controlled entities are exempt from this filing.5Franchise Tax Board. Annual and Filing Requirements – Charities and Nonprofits Late filings run a penalty of $5 per month up to $40, but the real risk is revocation for organizations that ignore the requirement outright.4Franchise Tax Board. FTB 927 Publication Introduction to Tax-Exempt Status
Federal Form 990 Series
At the federal level, organizations file a return in the 990 series: 990-N for gross receipts of $50,000 or less, 990-EZ for gross receipts under $200,000 and total assets under $500,000, the full 990 above those thresholds, and 990-PF for private foundations regardless of size.6Internal Revenue Service. Annual Electronic Notice (Form 990-N) for Small Organizations FAQs: Who Must File Miss three consecutive federal filings and IRC Section 6033(j) triggers automatic federal revocation, effective the original due date of the third missed return.7Internal Revenue Service. Automatic Revocation of Exemption Because Form 3500A rides on the federal letter, losing federal status can put California status at risk too.
Attorney General Registration for Charities
Charities that solicit or receive donations in California also register with the Attorney General’s Registry of Charities and Fundraisers. Initial registration is Form CT-1 with a $50 fee, and annual renewal is Form RRF-1 with either Form CT-TR-1 or the organization’s IRS Form 990 attached.8State of California Department of Justice. Forms – Charities This one catches organizations by surprise because it sits with a different agency than the FTB.
When Exempt Organizations Still Owe Tax
Exempt status does not shelter every dollar. Income from a trade or business unrelated to the organization’s exempt purpose is taxable once it crosses $1,000 in gross income, and the organization files Form 109 with the FTB.9Franchise Tax Board. FTB Publication 1068 Exempt Organizations The federal threshold matches, triggering Form 990-T with the IRS.10Internal Revenue Service. Unrelated Business Income Tax
The activity has to be regularly carried on and substantially unrelated to the exempt purpose. A museum gift shop selling items unrelated to its educational mission, or a charity leasing out unused office space, is the standard pattern. One-off fundraisers like bake sales or auctions generally don’t count.
Losing Exempt Status and Getting It Back
When California revokes exempt status, the organization becomes subject to the franchise tax like any for-profit corporation, including the $800 minimum for each year the exemption was absent, plus the same penalties and interest that apply to for-profits. The name and revocation date go on the public record.4Franchise Tax Board. FTB 927 Publication Introduction to Tax-Exempt Status
Reinstatement in California requires filing all missing returns, paying everything owed, and submitting a fresh Form FTB 3500 with full supporting documents (Form 3500A is off the table once revocation has happened). Federally, Revenue Procedure 2014-11 offers several paths back. Organizations eligible to file 990-EZ or 990-N that have never been revoked before can use a streamlined retroactive reinstatement if they apply within 15 months of the revocation letter. Others must show reasonable cause for at least one of the missed years.11Internal Revenue Service. Automatic Revocation – How to Have Your Tax-Exempt Status Reinstated
Form CDTFA-230: The Resale Certificate
CDTFA-230 is a different animal. It is not an exemption for the buyer’s business generally; it is a certificate the buyer gives a seller to buy inventory without paying sales tax, on the understanding that the buyer will resell those goods in the regular course of business. When a seller accepts a valid certificate in good faith, the seller owes no tax on that sale.12California Department of Tax and Fee Administration. Sales for Resale (Publication 103)
To issue a certificate, the buyer generally needs a valid California seller’s permit. Purchasers who sell only non-taxable items (food products for human consumption, for example) or who make no California sales can still issue one, but must explain on the form why they hold no permit.13California Department of Tax and Fee Administration. Regulation 1668 – Sales for Resale The certificate only covers goods the buyer intends to resell, either as-is or as components of another product. Equipment for operating the business, office supplies, and anything for personal use are not covered.
Filling Out the Form
The form is a PDF on the CDTFA website.14California Department of Tax and Fee Administration. CDTFA-230 General Resale Certificate It asks for the buyer’s seller’s permit number, the business name and address as they appear on the permit, a description of the property being bought and how it fits the resale inventory, and a signature from the purchaser, an employee, or an authorized representative.
The buyer hands the completed certificate to the seller at the time of purchase. Sellers should verify the permit number before accepting it, either through the CDTFA’s online lookup or by calling the automated line at 1-888-225-5263.15California Department of Tax and Fee Administration. Sales for Resale (Publication 103) – Valid Resale Certificates A seller who accepts a properly completed certificate in good faith is off the hook for the sales tax even if the buyer later uses the property for something other than resale.13California Department of Tax and Fee Administration. Regulation 1668 – Sales for Resale Both sides should keep copies for at least four years, the general California tax record retention period.16California Department of Tax and Fee Administration. Sales and Use Tax Records (Publication 116) – Retaining Records
Penalties for Misusing a Resale Certificate
Buyers who knowingly use a resale certificate to duck tax on items for personal use owe the tax they should have paid plus a penalty of 10 percent of the tax or $500, whichever is greater, on each improper purchase. Misuse can also be charged as a misdemeanor under Revenue and Taxation Code Section 6094.5.13California Department of Tax and Fee Administration. Regulation 1668 – Sales for Resale14California Department of Tax and Fee Administration. CDTFA-230 General Resale Certificate
A buyer who also fails to report and pay use tax on the improperly purchased items faces additional penalties: 10 percent for negligence, 25 percent for fraud.13California Department of Tax and Fee Administration. Regulation 1668 – Sales for Resale Stacked on the same transaction, the numbers move quickly past whatever the buyer saved on the purchase.