Non-profit organizations pay little or no income taxes. A CIRA cannot qualify as a non-profit organization under Sec. 501(c)(3) of the Internal Revenue Code because they are not an educational, scientific, religious or charitable organization. Contributions to 501(c)(3) organizations are tax deductible.
Hawaii laws allow most community associations to incorporate under the Hawaii non-profit statutes. Typically, this is done to provide further liability protection to Board members who serve without compensation. The fact that a CIRA qualifies as a non-profit organization under Hawaii statutes has no bearing when it comes to the filing of federal and State income taxes.
All CIRA’s, including condominiums, have common area expenses. Assessments are collected from unit owners to pay for the common expenses of operating the CIRA. These common expenses are shared by the members of the community associations. Logically, it makes no sense for a community association to pay income taxes on any excess of revenues over expenses (i.e. “profit”).
However, most community associations also derive revenues from other sources, i.e. interest, rental income, laundry income, vending machines, etc. The net income from these ancillary revenue sources are always subject to income taxes.