Frequently Asked Questions
- What types of exemptions are available to a nonprofit organization in Texas?
- State law allows various types of organizations to be exempted from paying sales tax, hotel occupancy tax, and, if incorporated, franchise tax.
- Are there any exemptions available for entities organized for profit?
- Yes. If your organization requests exemption based on its federal status under Internal Revenue Code (IRC) Section 501(c)(2), (16), or (25), the organization can be a profit or a nonprofit corporation. Exemption from franchise tax is also possible for certain insurance companies or open-end investment companies that are organized for profit.
- How do I apply for an exemption?
- To apply for exemption, complete the appropriate application and include the required documentation.
If your organization is applying for exemption:
- as a charitable organization…complete AP-205 (PDF, 275KB).
- as a religious organization…complete AP-209. (PDF, 250KB).
- as a homeowners' association…complete AP-206. (PDF, 302KB).
- as an educational organization…complete AP-207. (PDF, 256KB).
- as any other exemption type…complete AP-204. (PDF, 342KB).
Our mailing address is on the application.
- Your application asks for a copy of the file-stamped articles of incorporation. Where do I get this document?
- If your corporation is registered in Texas, you can order copies using the Secretary of State's SOS DIRECT online system, or you can call them at (512) 463-5578. Out-of-state corporations must contact the filing office in the state where they are incorporated.
- Are 501(c) organizations exempt from state taxes?
- Not automatically. However, the Tax Code recognizes certain federal exemptions for exemption from franchise tax and sales tax. If your organization has received exemption from federal taxation under 501(c)(3), (4), (8), (10) or (19), it qualifies for exemption from sales tax and, if incorporated, franchise tax. Exemption from franchise tax is possible if your organization received a federal exemption under 501(c)(2), (5), (6), (7), (16), or (25). Complete AP-204 (PDF, 342KB) and send it to us along with the required documentation listed on the application.
Organizations that are exempt because of their IRS status are not exempt from hotel occupancy tax. To receive a hotel occupancy tax exemption, religious, charitable and educational groups with IRS 501(c) exemption should complete the application specific to their organization type.
- Are churches automatically exempt from state taxes?
- No. A religious organization in Texas must apply to the Comptroller for exemption from sales, franchise and hotel occupancy taxes. To receive a state tax exemption as a religious organization, a nonprofit religious organization must be an established congregation regularly meeting at a particular location to hold conduct and sponsor religious worship services according to the rites of its sect. To apply for exemption as a religious organization, complete AP-209 (PDF, 250KB) and send it with the documentation listed on the application.
- How can our organization apply for an exemption from federal taxes?
- Contact the Internal Revenue Service. You should find their publication 557, Tax-Exempt Status For Your Organization helpful, or you can call them toll free at (877) 829-5500.
- How do I form a nonprofit corporation in Texas?
- You must file a certificate of formation with the Texas Secretary of State. You will find useful information on their Web site, including their Filing Guide, the Certificate of Formation and a list of Frequently Asked Questions. You can also call them at (512) 463-5555.
- Once granted by the Comptroller, can a state tax exemption be revoked?
Yes, an entity's state tax exemption may be revoked under certain circumstances.
If the state tax exemption is based on an entity's federal exemption, the revocation, withdrawal, or loss of the federal exemption automatically ends the state tax exemption. See IRS Publication 78 to verify the federal exempt status of a 501(c)(3) organization, or call them at (877) 829-5500.
A comptroller's representative may request additional information that is necessary to ascertain the continued validity of the organization's exempt status. If the comptroller determines that an organization is no longer entitled to its exemption, then the comptroller will notify the organization.
An exempt organization must notify the Comptroller in writing if there is a change in its purpose or activities that causes the organization to no longer qualify for the exempt status.
An organization must notify the comptroller in writing of a revocation, withdrawal, or loss of exemption when the organization no longer qualifies for exemption.
Exempt Purchases and Exempt Sales
- What can an exempt organization purchase tax-free?
- An exempt organization that is exempt from sales tax may buy tax-free goods and services that further the organization's exempt purpose. When purchasing a taxable item, an exempt organization must give the retailer a properly completed exemption certificate to document the exempt sale. The certificate must be issued on a timely basis and it must include certain specific information. See Rule 3.287.
- Does an exemption certificate have to have a number to be valid?
- No, the exemption certificate does not have to have a number to be valid. However, the Comptroller's office will assign a taxpayer identification number to an exempt organization's account so we can show the exemption on our records, and you may provide that number if the seller requests it. This number does not mean the organization is permitted for collecting or remitting taxes.
- Should an exempt organization making sales collect sales tax?
- Generally, exempt organizations must obtain sales tax permits and collect and remit sales tax on all goods and taxable services they sell. See our publication Exempt Organizations - Sales and Purchases (PDF, 495KB) for a list of limited exceptions.
If you need a sales tax permit, complete form AP-201 (PDF, 693KB)
- What are the franchise tax responsibilities of a nonprofit corporation and a limited liability company?
- Corporations whether profit or nonprofit, are subject to franchise tax until an exemption has been granted.
- What happens if my corporate charter is forfeited?
- A corporation whose charter or certificate of authority is forfeited is not eligible for exemption from any state taxes. The corporation must reinstate the charter or certificate of authority before receiving a tax exemption.
Normally, corporations must file all outstanding franchise tax reports, including the public information report, and pay any amounts due before applying for reinstatement of the charter with the Secretary of State. But corporations eligible for exemption can file the appropriate application for exemption with the Comptroller's office instead of filing the outstanding franchise tax reports and paying the tax due.
The Comptroller's office will issue a certificate of tax clearance after making the determination that the corporation is eligible for exemption. This certificate must be filed with the Application for Reinstatement with the Secretary of State's office to reinstate the charter or certificate of authority. Once the Secretary of State has approved the reinstatement, the corporation should forward a copy of the file-stamped reinstatement to the Comptroller's office. We cannot process the application for exemption until we receive proof of reinstatement.
- Can a homeowners association qualify for exemption from franchise tax?
- A qualifying nonprofit homeowners' association is exempt from franchise tax. To qualify, the association must be a corporation organized and operated primarily to obtain, manage, construct and maintain the property in or of a residential condominium or residential real estate development. The owners of individual lots, residences or residential units must control at least 51 percent of the votes.
The association will not qualify for exemption if voting control is held by a single individual or family, or by one or more developers, declarants, banks, investors or other similar parties.
To apply for exemption as a homeowners association, complete AP-206 (PDF, 302KB) and send it with the documentation required as listed on the application.
- I travel on behalf of my organization. Am I eligible for hotel tax exemption?
- Organizations that have been granted a charitable, religious or educational exemption are exempt from state hotel occupancy tax. Employees of such an organization may issue a properly completed hotel occupancy tax exemption certificate (PDF, 66KB) to the hotel at the time of registration, when traveling on official business for the organization. Effective October 1, 2003, the hotel may require a copy of your exemption letter or verification, such as a printout from the Comptroller's list of exempt entities, showing the organization is exempt from hotel tax. Local hotel taxes are still due.
- What organizations or individuals are exempt from paying both state and local hotel occupancy taxes?
- The United States Government and its employees traveling on official business.
- Foreign diplomats issued a hotel exemption card by the U.S. Department of State.
- Certain Texas State officials who are issued special hotel tax exemption cards. Included are heads of state agencies, members of state boards and commissions, judicial officials at the district court level and above, state legislators, and legislative employees.
- Permanent residents, who are guests that occupy a room for at least 30 consecutive days. Any interruption in the right of occupancy will void the exemption.
- Guests who notify the hotel in writing of their intention to stay 30 or more consecutive days will be exempt from the day of notification.
- Guests who do not notify the hotel must pay the tax the first 30 days and thereafter will be exempt.
- Specific nonprofit entities exempt by law other than the hotel tax statute and their employees traveling on official business.
- The entity must have received a letter of hotel tax exemption from the Comptroller's office.
- The reason for the exemption should be written on the exemption certificate. For example, "exempt per Electric Cooperative Act, Utilities Code, Chapter 161" or "exempt per Telephone Cooperative Act, Utilities Code, Chapter 162."
- Are Texas state agencies and their employees exempt from hotel taxes?
- No, state agencies (except Texas institutions of higher education) and their employees (except certain state officials described above) must pay state and local hotel taxes. State agencies may request a refund of state and local hotel taxes paid or reimbursed to employees (Rule 3.163). County and city agencies and their employees also must pay state and local hotel taxes, but they do not qualify for a refund.
- Our organization received a letter from the Comptroller saying we are exempt as an Internal Revenue Code 501(c)(3) organization. One of our employees recently stayed in a hotel while on business for the organization and paid hotel occupancy tax. Are we entitled to a refund?
- No. Organizations that have been granted an exemption based solely upon federal tax status are not exempt from hotel tax. See Publication 96-224, Hotel Occupancy Tax Exemptions.
- What property tax exemptions are available?
- Information about available property tax exemptions is online. You can also call our Property Tax Division at (800) 252-9121.
- Are parent-teacher organizations and associations automatically exempt from state taxes?
- No. School groups are not exempt by law; they must apply for exemption. Applications are online.
- What information should a parent teacher association or organization submit to apply for exemption?
- Parent-teacher associations that are members of the Texas Congress of Parents and Teachers (TCPA) or the National Congress of Parents and Teachers should complete form AP-207, the Application for Exemption - Educational Organization (PDF, 256KB) and attach a letter from the parent organization confirming that it is a subordinate of the organization (or provide a web address for the parent organization where this information can be verified.).
Parent-teacher organizations, and parent-teacher associations that are not members of either the state or national organization, should complete the same application and provide a copy of the organization's governing document (Articles of Incorporation, Articles of Association, bylaws, etc.) If the governing document does not clearly establish the organization's relationship with the school and that it functions as a parent-teacher organization, the Comptroller may require additional information to consider the exemption.
- What about booster clubs and other school support organizations?
- Booster clubs and similar organizations will not qualify for exemption as an educational organization. However, if the club or school support organization is exempt from federal income tax as a 501(c)(3) or 501(c)(4) organization, they would be entitled to exemption from sales tax and, if applicable, franchise tax. These organizations should submit form AP-204, Application for Exemption - Federal and All Others (PDF, 342KB), along with a copy of the determination letter from the Internal Revenue Service stating that the organization has qualified as a 501(c)(3) or 501(c)(4) organization.
- Can Youth Athletic Organizations qualify for tax exemptions?
- Yes, a youth athletic organization may qualify for state tax exemption, either under the youth athletic exemption or based on its status as a 501(c)(3) or 501(c)(4) organization. The organization should submit the AP-204, Application for Exemption - Federal and All Others (PDF, 342KB)with supporting documentation. Supporting documentation required to substantiate the request for exemption is detailed in the publication Guidelines to Texas Tax Exemptions.
- My organization has a federal tax identification number. Does that mean that we are tax-exempt?
- No. Merely having a federal tax identification number or federal employer identification number (FEIN) does not mean that an organization is exempt from state or federal taxes.