Foundations and Friends Legal Responsibilities
*Fees listed are subject to change. Check the appropriate website for the most current
information.
Foundations and Friends groups have very similar legal responsibilities and must undergo
the same procedures for obtaining nonprofit status.
●Nonprofit status allows donors to take a tax deduction for their gifts.
●Nonprofit status allows the Foundation or Friends group to apply for grants.
●Nonprofit corporations do not make money.
●Nonprofits must be properly registered with the IRS and the Secretary of State.
●SD State law requires that
-“No part of the income or profit is distributable to its members, directors or
officers
- Nonprofits “shall not have or issue shares of stock”
To establish nonprofit status, you need these:
 Incorporators
●Need at least three
●Need not be SD residents
●Must sign Articles of Incorporation
 Board of Directors
●Need at least three
●Need not be SD residents
●May be the Incorporators
●First Board of Directors named in Articles of Incorporation
●Number, selection process, and term are specified in Bylaws
 Board of Directors’ Officers Requirements
●Term of three years or less
●Provisions in Bylaws
●Same person can hold two or more offices, but President and Secretary must be
different
●Names and offices are reported on the first Annual Report
 Registered Agent
●Person to whom communications are sent
●Must give verbal consent to board to act as agent
●Must be individual resident or other authorized corporation
●Must give physical address (not PO Box, etc.)
 Organization Name
●Different from any name registered with the Secretary of State of South Dakota
●Can call for name availability
●Can reserve a name for 120 days for $25
 Articles of Incorporation (State Document)
●Available on State website at
http://sdsos.gov/content/html/corporations/corporationpdfs/Pamphlets/nonprofit%
20good%20pamphlet.pdf
●Costs $30
●Recommended that you seek legal assistance, either from your funding
authority’s legal staff or lawyer who will work pro bono
●Form requires
 Name of corporation
 Purpose of corporation
 Length of existence (can be perpetual)
 Whether or not there will be members (Friends probably would)
 Registered Agent name and physical address
 Names of Board of Directors
 Names of Incorporators
●Identifies voting practices and dissolution procedures
●Send in two copies, one original and one photocopy
●SD Codified Law 47-22 specifies components of Articles of Incorporation
http://legis.state.sd.us/statutes/DisplayStatute.aspx?Statute=4722&Type=Statute
●See SD Friends of the Library and Foundation groups here:
http://sdsos.gov/business/search.aspx
 IRS Applications
http://www.irs.gov/pub/irs-pdf/p4220.pdf Applying for 501(c)(3) status
http://www.irs.gov/pub/irs-pdf/f1023i.pdf Forms and Instructions for IRS Form 1023
●File Form 1023
●Pay appropriate user fee
 http://www.irs.gov/pub/irs-pdf/f1023.pdf
 user fee is $400 if gross receipts are $10,000 or less annually over a 4-year
period
 user fee is $850 if gross receipts exceed $10,000 annually over a 4-year
period
●Step-by-step instructions are here:
 http://www.irs.gov/Charities-&-Non-Profits/Application-Process
●Foundation or Friends group does not pay federal taxes for the income &
interest on income
●Contributions are tax-deductible by donor
●Keep originating paperwork on file for potential donors
 Apply for EIN (Employee Identification Number)
●Need EIN whether or not you have employees
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●Necessary if Foundation pays wages and withholds taxes
●Used for ongoing filing & reporting
●Foundation, Friends, and Library must have different EINs
●Information and filing form here:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Howto-Apply-for-an-EIN
 Bylaws
●Not filed with the State of South Dakota
●Not filed with IRS
●Act as framework and operating guide
●Contain rules and practices
- Contain standing rules, meeting information, quorum requirements,
bylaw revision & other practices
● Identify officers, duties, membership requirements & committees
responsibilities
Sample Bylaws
http://www.oregon.gov/osl/LD/Pages/example-bylaws.aspx
Documents Filed Annually
 Annual Report To Secretary of State
●File every year
●$10 filing fee
●Update officers & directors
●Signed by president or officer
●Due on anniversary month of incorporation
●Failure to file leads to administrative dissolution
-If not filed by first day of the second month after anniversary,
organization is considered delinquent.
 To IRS
●IRS Form 990, 990 EZ, or 990-N
http://www.irs.gov/pub/irs-pdf/f990.pdf
http://www.irs.gov/pub/irs-pdf/f990ez.pdf
http://www.irs.gov/Charities-%26-Non-Profits/Annual-Electronic-FilingRequirement-for-Small-Exempt-Organizations-Form-990-N-(e-Postcard)
●Required to maintain tax-exempt status!
●Public document, available for all to see upon request
Organizations can check their status in this database established by the National
Center for Charitable Statistics:
http://nccsdataweb.urban.org/PubApps/statePicker.php?prog=epostcard&display=
state.
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 Other paperwork for the State (filed if necessary)
●Amending Articles of Incorporation
-Requires majority vote
-$15 fee
●Statement of Change
-Keep Registered Agent current
-Change of address, etc.
-$10 fee
State Taxes
 South Dakota State Sales Tax
●Although official Foundations and Friends groups are nonprofit, they are NOT
exempt from state sales tax because they receive private donations and are
not taxpayer funded.
●Sales tax is due on purchases made by Foundations and Friends groups.
●Sales tax is NOT due on purchases made by the Library.
●Sales tax is NOT due on funds flowing through the Foundation or Friends group
to the Library (such as grant funds).
●If the Foundations or Friends group sells something as a fundraiser, they must
charge 4% SD state sales tax + whatever municipal tax applies.
-UNLESS the product or service is specifically exempt
○ prescription drugs, ag products, livestock, motor vehicles
- Product or service is used for exempt purpose
○sale for resale, components that become part of a product,
materials for ag production, out-of-state deliveries
-Sale for resale requires filing an Exemption Certificate
○Purchaser completes
○Seller files & keeps
○Need to file one-time
○Available at
http://dor.sd.gov/Taxes/Business_Taxes/Publications/PDFs/exemption
_certificate0713.pdf
●Foundations and Friends need a sales tax license to
-Sell taxable tangible personal property or services
AND
-Maintain physical presence within SD
●Application available at
https://apps.sd.gov/applications/rv23cedar/main/main.aspx
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●Memberships are not subject to sales tax if members receive a newsletter or
certificate only
●If members receive tangible personal property (TPP) or services when joining,
the TPP or services are subject to state sales tax, as well as any applicable
municipal sales taxes
-Includes T-shirts, caps, art, books, videos, and similar premiums
-If membership includes free admission, membership amount is subject to
sales tax
●Monetary donations are not subject to sales tax unless they are in exchange for
membership TPP, in which case the TPP portion is subject to tax
 South Dakota Use Tax
●Applies when sales tax is not paid at time of purchase
●Retailer pays sales tax, purchaser pays use tax
●If applicable, your Foundation or Friends group owes either sales or use, not
both
●Use tax is the same rate as State & Municipal tax
-Use tax applies to selling/purchase price INCLUDING freight/delivery charges
●Use tax is the most common audit infraction, resulting in fines
●Exemptions from Use Tax
-purchases for resale
-if product or service purchased is exempt from Sales Tax, it is exempt
from Use Tax
●The need to pay usually occurs when purchasing something out of state on
which you did not pay state sales tax.
– Check invoices from out-of-state companies to see whether you were
charged sales tax.
– Ask companies if they have SD sales tax license. If yes, they can charge
sales tax, and you don’t owe use tax.
– Unlicensed out-of-state companies cannot charge SD state sales tax, so
you owe use tax.
Contact the SD Department of Revenue for more information about sales and use tax:
Call toll-free 1-800-TAX-9188.
Website http://dor.sd.gov/
Email bustax@state.sd.us
Write:
SD Department of Revenue
445 East Capitol Ave.
Pierre, SD 57501-3100
Contact the SD Secretary of State for more information about nonprofit applications and
reports:
Website http://sdsos.gov/Business/Default.aspx
Email openforbiz@state.sd.us
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OTHER RESOURCES
The Foundation Center website
http://foundationcenter.org/getstarted/faqs/html/foundfun.html
Rapid City Foundation website http://rapidcitylibrary.org/foundation/homepage.asp
Vermillion Public Library Foundation web page
http://vermillionpubliclibrary.org/support/vermillion-public-library-foundation/
Vermillion Public Library Friends web page
http://vermillionpubliclibrary.org/support/friends-of-the-vermillion-public-library/
Watertown Regional Library Friends of the Library web page
http://www.watertownsd.us/index.aspx?NID=263
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