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 Michigan.gov.

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 Michigan.gov.

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.

Can the Friends of the Library be the organizer/proponent for a millage request? Or, because the Friends is a 501c3, does the millage advocate have to be a separate group?

The ballot question committee must be a separate legal entity. Friends groups can advocate as citizens and donate money as provided by the law. The formula is based on yearly expenditures made for an exempt purpose. Translation: yearly expenditures made doing normal Friends’ business. Charitable nonprofits that possess 501(c)(3) status can donate .2 (x) yearly exempt expenditure = _______ (x) .25 = amount they can donate every year.

The following guidelines should be noted:

1. Any group which receives or spends $500 or more in a calendar year to influence voters must form a campaign finance committee in accordance with the Michigan Campaign Finance Act, 1976 PA 388, MCL 169.201 et seq.

2. In general, no organization qualifies for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying). A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status

3. Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.

This is meant for informational purposes only and is not intended as legal advice. Please consult with your own legal counsel.

What are the legal limits on spending for non-profits who engage in advocacy campaigns?

Fact Sheet # 23 from United For Libraries (a division of the American Library Association) provides information on “Advocacy Campaigns: Legal Limits on Spending for Non-Profits.”  Click here to download the UFL fact sheet.

What exactly can Friends do and not do?

There are no hard and fast rules of behavior that govern the working relationships between the Library Director, the Trustees and the Friends. However, there are general principles covering the respective roles of each which were developed some time ago and which are available to you in Appendix A of the FOML Handbook.

Many Library Directors and Friends groups have found these principles are useful as a convenient starting point in the development of a Memorandum or letter Of Understanding (MOU) of how the various parties will interact pertaining to their specific case. It is strongly suggested that representatives of the Director, the Friends and the Trustees work on the development of such an agreement.

What should be the working relationship between the Friends and the Library Director?

The Friends will usually work directly with the Library Director on a day-to-day basis to work on mutual goals for the betterment of the library. This working relationship is generally more peer-to-peer rather than as a direct report to the Director. However, members of the Friends also often attend Trustee Board meetings and if given time on the agenda, report on the activities of the friends. However, it is very rarely if ever that the Friends would propose an action or expenditure related to the library without it being a mutual proposal coming from or through the library director.

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