Whether cemeteries are tax exempt depends on how they’re organized. Nonprofit cemetery companies can qualify for exemption from federal income tax under Section 501(c)(13) of the Internal Revenue Code, and most states also exempt their land from local property tax. For-profit cemeteries get neither break and are taxed like any other business, with one narrow exception for perpetual care funds.
Which Cemeteries Qualify for Federal Exemption
Section 501(c)(13) recognizes two kinds of cemetery organizations as exempt from federal income tax.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The first is a nonprofit mutual cemetery company owned and operated for the benefit of its members, meaning the plot owners themselves. The second is a nonprofit cemetery corporation or crematorium chartered solely to dispose of human remains by burial or cremation, with a charter that forbids any unrelated business and no net earnings flowing to private individuals.
The common thread is that the operation must actually be nonprofit. The IRS has stated that the 501(c)(13) exemption “was not contemplated for cemeteries operated in the ordinary commercial manner to make profits for individuals.”2Internal Revenue Service. J. Cemeteries A cemetery where earnings reach owners, shareholders, or insiders does not qualify, no matter what the paperwork says. Officers and employees can draw reasonable compensation, but that’s the limit.
To get recognized, the organization files Form 1024 with the IRS and shows that it fits one of the two categories.
What the Federal Income Tax Exemption Covers
A qualifying 501(c)(13) cemetery pays no federal income tax on income tied to its burial or cremation purpose. That includes revenue from plot sales, burial and cremation fees, and investment returns on perpetual care funds.
Perpetual care funds work a little differently than other investments. When a nonprofit cemetery collects money at the time of sale and invests it to pay for long-term grounds upkeep, the fund is treated as part of the exempt organization. Its investment earnings stay tax-free as long as the money is used for care and maintenance of the cemetery grounds.
When an Exempt Cemetery Still Owes Tax
Exempt status is not a blanket pass. If a cemetery earns money from a trade or business that is not substantially related to its burial or cremation purpose, that income is subject to the unrelated business income tax.3Office of the Law Revision Counsel. 26 USC 511 – Imposition of Tax on Unrelated Business Income of Charitable, Etc., Organizations Needing the money or spending the profits on exempt activities does not change the analysis; what matters is the activity itself.4Office of the Law Revision Counsel. 26 USC 513 – Unrelated Trade or Business
Renting a chapel for weddings unconnected to memorial services, or running a commercial flower shop open to the general public, can produce taxable income even though the cemetery itself remains exempt. A couple of exceptions apply: activities where substantially all the work is done by unpaid volunteers do not count as unrelated business, and neither do operations that mainly sell donated merchandise.4Office of the Law Revision Counsel. 26 USC 513 – Unrelated Trade or Business Outside those carve-outs, net income from side ventures is taxed at standard corporate rates.
Property Tax at the State and Local Level
Property taxes are set by state and local governments, so the exact rules depend on where the cemetery sits. The broad pattern across most states is that land and structures used exclusively for burial and related purposes are exempt from local property tax when owned by a nonprofit cemetery. The exemption usually covers the burial grounds, mausoleums, on-site chapels, and administrative buildings that directly support operations.
Undeveloped land a nonprofit cemetery holds for future burials typically qualifies as well, provided the organization intends in good faith to use it for interments and is not sitting on it for speculative or commercial reasons. Many jurisdictions require the cemetery to apply for the exemption rather than granting it automatically, and some require periodic renewal. If the paperwork lapses or the land starts being used for something else, the exemption goes away.
Narrower rules sometimes extend the exemption to private family burial plots on residential property, or to a caretaker’s residence on cemetery grounds when the caretaker’s duties include monitoring the property. These vary widely by state.
Sales Tax on Cemetery Purchases
Sales tax treatment depends on what’s being purchased and in which state. The dividing line that drives most of the variation is whether the charge is for a service or for tangible personal property.
Charges for perpetual care, annual maintenance, and gravesite upkeep are generally treated as services and often fall outside sales tax. The same tends to be true for opening and closing a grave.
Physical goods are usually taxable. Caskets, urns, burial vaults, and grave markers are tangible personal property, and most states apply their standard sales tax rate. Installation charges for monuments and markers may also be taxed, though some states exempt separately stated labor. Buying these items from the cemetery rather than a third-party retailer generally does not change the result.
How For-Profit Cemeteries Are Taxed
A cemetery that operates for profit does not fit 501(c)(13) and is taxed as an ordinary business corporation.2Internal Revenue Service. J. Cemeteries Plot sales, service fees, and merchandise revenue go into gross income, and the company owes corporate tax on net profits. Property tax exemptions are generally unavailable too, though a few states handle this differently.
One targeted break exists. Under IRC Section 642(i), a perpetual care fund set up by a taxable cemetery corporation under local law can deduct distributions it makes for care and maintenance of gravesites. The deduction is capped at $5 multiplied by the total number of gravesites the corporation has sold before the beginning of the fund’s tax year.5Office of the Law Revision Counsel. 26 USC 642 – Special Rules for Credits and Deductions To claim it, the fund must actually spend the distributed money on gravesite maintenance before the end of the following tax year.6eCFR. 26 CFR 1.642(i)-1 – Certain Distributions by Cemetery Perpetual Care Funds The $5-per-gravesite cap has not been adjusted since 1966, so the benefit is modest for larger operations, but it does cut back on the double taxation that would otherwise hit both the trust and the corporation on the same maintenance dollars.
Keeping the Exemption: Annual Filings
Exempt status is not permanent. Most 501(c)(13) cemetery companies must file an annual information return with the IRS, and the form depends on size.7Internal Revenue Service. Cemetery Companies – IRC Section 501(c)(13) Organizations with gross receipts normally $50,000 or less file Form 990-N, the electronic “e-Postcard.” Those with gross receipts under $200,000 and total assets under $500,000 file Form 990-EZ. Larger organizations file the full Form 990.8Internal Revenue Service. 2025 Instructions for Form 990
The consequence that catches small, volunteer-run cemetery associations off guard: if a tax-exempt cemetery fails to file for three consecutive years, the IRS automatically revokes its exempt status. No warning letter, no grace period. Revocation takes effect on the filing due date of the third missed return.9Internal Revenue Service. Automatic Revocation of Exemption After that, the cemetery has to reapply from scratch, and income earned during the gap may be taxable. The simplest protection is filing the 990-N each year, which takes only a few minutes online.