Definition:
A business that does not have to pay Federal taxes is considered to be "tax exempt." All tax-exempt businesses in the United States are also corporations set up as a nonprofit organization.
But nonprofit organizations are not automatically tax-exempt. They must file a special application with the IRS, requesting to be exempt from paying Federal tax. Some states also require a separate filing in order to be tax-exempt from paying state taxes.
Not all nonprofit organizations can become tax-exempt.
Pronunciation: tax-ex·empt or·gan·i·za·tion
Examples: The Rainbow Children's Society does not pay tax on its donations because it was created as tax-exempt charity.
