What You'll Learn
If you’re a nonprofit in Arizona, or you’re a nonprofit considering fundraising or other activities in Arizona, you must understand the requirements that Arizona has established for nonprofits operating in the state.
How can you become familiar with these laws? Where should you start?
Start here. This state profile includes the basic requirements nonprofits must consider. Reading the profile and implementing appropriate compliance measures will help you prepare your organization for success in Arizona.
Getting to Know the State Nonprofit Corporation Law
*Important primarily for nonprofits incorporated in Arizona
My first interview with the manager was curious. He did not ask me to sit down after my twenty-mile walk that morning. He was commonplace in complexion, in features, in manners, and in voice. He was of middle size and of ordinary build. His eyes, of the usual blue, were perhaps remarkably cold, and he certainly could make his glance fall on one as trenchant and heavy as an axe. But even at these times the rest of his person seemed to disclaim the intention. Otherwise there was only an indefinable, faint expression of his lips, something stealthy—a smile—not a smile—I remember it, but I can’t explain. It was unconscious, this smile was, though just after he had said something it got intensified for an instant. It came at the end of his speeches like a seal applied on the words to make the meaning of the commonest phrase appear absolutely inscrutable. He was a common trader, from his youth up employed in these parts—nothing more. He was obeyed, yet he inspired neither love nor fear, nor even respect. He inspired uneasiness. That was it! Uneasiness. Not a definite mistrust—just uneasiness—nothing more. You have no idea how effective such a... a... faculty can be. He had no genius for organizing, for initiative, or for order even. That was evident in such things as the deplorable state of the station. He had no learning, and no intelligence.
- Heart of Darkness, Joseph Conrad
When reading a novel, we get to know a fictional character by the author’s description of him or her. The author tells us what the character will look like, what his or her purpose will be, how he or she will act, and how he or she will make decisions.
Nonprofit corporations are something like fictional characters.
We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us what the organization will be called, what its purpose will be, how the nonprofit will act, and how it will make decisions.
To get to know your own nonprofit, you must be familiar with the sections below.
State Nonprofit Corporation Law
For Religious Nonprofits
Nonprofit Religious Corporations Act: Arizona’s nonprofit corporation law expressly: (a) acknowledges an option for nonprofit corporations to incorporate for religious purposes and (b) includes specific provisions to protect the right of nonprofits incorporated for religious purposes to self-government in internal affairs. The law does not include an option to incorporate expressly as a nonprofit religious corporation. See Ariz. Rev. Stat. Ann. § 10-3180; Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?”
Reliance on Religious Guidance in Governance: Arizona law permits a director to rely on guidance from religious figures within his or her faith tradition in the fulfillment of the director’s fiduciary duties. Ariz. Rev. Stat. Ann. Ann. § 10-3830
Understanding Religious Liberty in this State
*Important for all nonprofits doing business in Arizona, whether incorporated in Arizona or elsewhere
The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.
- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).
Sometimes, the state or local government (like the city or county) make laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.
For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.
So what do you need to do? Be aware of the laws listed below. If any of them impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.
Religious Liberty Protections
State Religious Freedom Restoration Act: Arizona has enacted a RFRA that protects the religious free exercise of all individuals and entities by requiring government burdens on religious exercise to satisfy strict scrutiny. These protections originate in a statute rather than the state constitution. Ariz. Rev. Stat. Ann. §§ 41-1493 et seq. ; Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.
Constitutional Protections for Free Exercise: The Arizona Constitution follows in lockstep with the federal constitution’s protections, meeting but not exceeding the required minimum protections of the First Amendment. Ariz. Const. Art. II § 12
State Blaine Amendment: The Arizona Constitution contains a Blaine Amendment that broadly restricts faith-based organizations’ freedom to participate in public benefit programs on the same terms as similarly situated secular institutions. Current U.S. Supreme Court precedent has rendered this language ineffective, but it could become effective in the future if Court precedent changes. Ariz. Const. Art. II § 12; Not sure what a Blaine Amendment is? Review the basics here.
Other Relevant State Laws and Regulations
Religious Freedom and Public Accommodation Laws: Arizona’s nondiscrimination laws generally restrict religious freedom for religious organizations that offer public programming and facilities and provide no meaningful religious accommodations or exemptions. Ariz. Rev. Stat. Ann. Ann. § 41-1442; Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.
Protections for Religious Exercise in State of Emergency: Arizona law provides that religious worship can only be prohibited or restricted by an emergency order that: (a) applies equally to all “essential” secular entities in the jurisdiction, (b) serves a compelling governmental interest, and (c) is narrowly tailored. Ariz. Rev. Stat. Ann. Ann. § 41-1495.01
Key Employment Laws and Regulations
Religious Freedom for Faith-Based Employers: Ariz. Rev. Stat. Ann. Ann. § 41-1463
Religious Freedom for Employees: no specific protections for employees’ free exercise in the workplace are present.
Conducting Activities or Programs in this State
Understand the Business Registration Requirements
*Important primarily for nonprofits doing business in Arizona but incorporated elsewhere
Depending on the type and volume of activities an organization has in this state, an organization may also need to register as an out-of-state business (sometimes called a “foreign business”) with the secretary of state or another state agency. These foreign business registration requirements are separate from the charitable registration. Not every out-of-state organization needs to register. An attorney can assist the organization in determining whether its connections with this state are significant enough to trigger the foreign business registration requirement. Examples of activities which might trigger this requirement include having employees physically located in the state, conducting programs in the state, and having an office in the state.
Business Registration Statute
Fundraising and Charitable Registration in This State
How to Know (And What to Do) If You're Fundraising In this State
*Important for Both Arizona and Foreign Nonprofits
Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.
Arizona no longer requires charitable solicitation registration, effective as of September 25, 2013.
If You're Fundraising in Multiple States, Make Sure You Understand the URS
The Unified Registration Statement (“URS”) is a standardized charitable registration accepted in many states. Since Arizona does not require any charitable fundraising registration, the URS is not needed to comply with Arizona law. However, if your organization is soliciting in other states, you should consider the URS.
Evaluate Whether You'll Need a Registered Agent
Some states require organizations to appoint a “registered agent” in the state as part of an organization’s registration with the state. Of course, Arizona does not require charitable solicitation registration, so a registered agent is not needed for fundraising purposes. However, if your organization will be conducting activities in Arizona, you may need to complete a foreign business registration and designate a registered agent in Arizona for purposes of that foreign business registration.
Follow the Rules About Communicating With the Public
Arizona does not require organizations to post specific language when conducting charitable solicitations. If your organization is soliciting in other states, make sure you understand whether those states impose particular communications or disclosure requirements.
Charitable Registration Statute
Charitable Registration Exemption Statute
Annual Report Requirement
Get Acquainted with State and Local Taxes and Exemptions
State and Local Taxes
In Arizona, organizations which have received federal income tax exemption under IRC Sec. 501(c)(3) are automatically exempt from state corporate income tax. Some organizations may choose to send a copy of their IRS determination letter to the state department of revenue to indicate the organization’s position that it qualifies for the exemption. Note that, although an organization may be exempt, if it has unrelated business taxable income (UBTI) that is subject to federal taxation, that UBTI will be subject to state income tax. See Ariz. Rev. Stat. § 43-1231.
It is also important to consider whether applying for sales and use tax and property tax exemption would be appropriate for your organization. An accountant or attorney can provide specific answers to these questions.
Corporate Income Tax Statute
Arizona imposes a corporate income tax but automatically exempts organizations with federal 501(c)(3) exempt status. Ariz. Rev. Stat. Ann. § 43-1201
Corporate Franchise Tax Statute
This state does not have a corporate franchise tax.
What You Need to Know About Sales Tax
Sales and Use Tax: Arizona imposes a sales and use tax on religious organizations’ sales but a broad and comprehensive, entity-based tax exemption for 501(c)(3) religious organizations’ sales is generally available upon application. Arizona imposes a sales and use tax on religious organizations’ purchases and only provides limited exemptions. Ariz. Rev. Stat. § 42-5151 et seq.; Exemption- Ariz. Rev. Stat. § 42-5159
State Tax Treatment of Unrelated Business Income: Ariz. Rev. Stat. § 43-1231
State Sales and Use Tax and Required Registrations: Ariz. Rev. Stat. § 42-5154
State-Specific Special Requirements
This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.