Primarily Charitable OrganizationsHouse Bill 1689 Creates Local Option Tax Exemption
Under H. B. 1689, individual taxing units must adopt the local option exemption. Each unit may do this by vote of the governing body, or by majority vote at an election called by the governing body upon petition by 20 percent of the qualified voters who voted in the taxing unit's last election.
It is important to know that time is short for an organization to receive the exemption for the 2002 property tax year. The bill allows a taxing unit’s governing body to approve the exemption; but if the taxing unit does not, the bill allows an organization to petition for an election to be held during the next regular election.
The taxing unit (governing body or citizens) votes to adopt the exemption for all qualified organizations in its jurisdiction. It cannot “pick and choose” among those eligible for the exemption. If, for example, five organizations in a school district are eligible for the exemption, all five of the eligible organizations may receive the school exemption. While these five organizations receive an exemption from the school district, the county and city decide whether or not to exempt those organizations’ property.
Each taxing unit must decide its exemption policy. Any election by petition is by taxing unit, not for all taxing units in the appraisal district.
The new law requires the charitable organization to be engaged primarily in performing one or more of the 20 statutory charitable functions listed in Tax Code Section 11.18(d). If a taxing unit or units adopt the exemption, an organization is entitled to exemption of the following property used exclusively for the charitable function listed in Section 11.18(d) by the organization or other charitable organizations:
Use of the exempt property by persons who are not the charitable organization does not result in loss of the exemption if the use is incidental to use by the charitable organization and limited to activities that benefit the charitable organization owning the property.
- Buildings (including incomplete improvements for not more than three years);
- Other real property; and
- Tangible personal property.
An organization may qualify, but receive no benefit from the exemption, because either it owns no property or the appraisal district determines that the property is not used exclusively for qualifying charitable activities.
An organization receives the full benefit of this property tax exemption only if each taxing unit having jurisdiction to tax its property votes to adopt the exemption. If one taxing unit adopts the exemption, a qualified organization will receive an exemption from that unit’s property taxes, but must pay property taxes to those units that have not adopted the exemption.
To ensure equitable administration of the exemption statewide, the Comptroller’s office must determine if an organization is primarily engaged in certain charitable activities. Upon review of an organization’s application, the Comptroller will issue a letter of determination to the organization if all requirements are met.
This letter will be conclusive evidence to the chief appraiser of the organization’s charitable status. The charitable organization must submit this letter with the exemption application filed with the appraisal district. The chief appraiser determines if the property’s use qualifies it for the exemption.
An organization applies for a “determination letter” from the Comptroller’s office. The organization must complete and return the application form prescribed by the Comptroller to Tax Policy Division’s Exempt Organizations Section, Attention: Irene Cage, P. O. Box 13528, Austin, Texas 78711-3528, or call 1-800-531-5441.
The Comptroller has 90 days to determine if the organization is eligible. The Comptroller may request additional information. The application form AP-199 is available in PDF format. If you do not already have Adobe Acrobat Reader, you will need to download the latest version to view and print the form.
The Comptroller will send the organization a letter stating "the organization is engaged primarily in performing functions listed in Section 11.18(d), Tax Code, and is eligible for an exemption” if the organization meets all requirements.
In issuing a determination letter, the Comptroller must consider:
The Comptroller staff requires at least 30 days to review the organization’s request and make a determination. For some requests, staff will need to request additional information from the organization. Complex reviews and determinations may take the full 90 days to complete.
- Whether the organization is recognized by the Internal Revenue Service (IRS) as tax exempt under Section 501a, Internal Revenue Code of 1986;
- Whether the organization holds an exemption letter from the Comptroller’s office under Tax Code Section 151.310 for religious, educational, or public service organizations;
- Whether the organization's charter or bylaws require charitable work or public service;
- The amount of charitable or public service monetary or in-kind support given or provided in proportion to: 1) operating expenses; 2) dues; and 3) preceding year property taxes (or estimated prior year taxes if the property was exempt); and
- Other factors the Comptroller considers relevant.
To ensure receipt of a determination letter before the exemption application deadline of April 30, an organization should file its determination request on or after January 15 and before April 1. If the organization does not meet this deadline, the organization may contact the Comptroller to determine if an extension is available.
The organization files an exemption application with the chief appraiser of the county appraisal district where the organization’s property is located. The chief appraiser will determine an organization’s property qualification for exemption based on:
The chief appraiser, for good cause shown, may extend the April 30 deadline for filing an exemption application for a single period not to exceed 60 days, as allowed by Tax Code Section 11.43(d). Given the short time for qualifying for the new exemption for the initial 2002 tax year, an organization may need to request an extension in writing from the chief appraiser before April 30, 2002, particularly if the organization has difficulty with its determination letter.
- Authorization for exemption by one or more taxing units;
- Receipt of the Comptroller determination letter, that the law makes conclusive evidence the organization is primarily engaged in performing charitable functions; and
- Whether the property is used exclusively by the organization for charitable purposes.
If the chief appraiser has reason to believe that the Comptroller erroneously concluded that an organization is primarily charitable, the chief appraiser may submit evidence to the Comptroller’s Property Tax Division (PTD) manager. The PTD manager will then review the evidence and determine the validity of the initial determination.
An organization is required to obtain a new Comptroller determination letter and reapply with the appraisal district for the exemption following the end of the fifth year of exemption.
Taxing units and appraisal districts that have questions about their role should contact the PTD’s Technical Assistance Section at 1-800-252-9121, select option 2. Or, they may e-mail the staff at firstname.lastname@example.org.
Charitable organizations that need more information should call the Comptroller’s Exempt Organizations Division at 1-800-531-5441 or e-mail email@example.com.