taxes

501(c)(3), (4), (8), (10) or (19)

A 501(c)'s exemption from certain state taxes is based largely on an organization's affiliation with its parent entity, assuming that

  • The organization is a recognized subordinate under the parent organization's group exemption
  • The parent organization's group exemption meets the exemption requirements from one or more of these state taxes
  • The parent organization's group exemption has been established on the Comptroller's records

What kinds of exemptions is my 501(c) organization eligible for?

501(c)(3), (4), (8), (10) or (19) organizations are exempt from Texas franchise tax and sales tax.

A federal tax exemption only applies to the specific organization to which it is granted. Note that when an organization changes its structure, it effectively creates a new organization and must reapply for both federal and state tax exemption.

For example, assume that the Acme Foundation, an unincorporated organization, is granted a federal tax exemption. The foundation then incorporates in the name of Acme Foundation Inc. The federal exemption granted to Acme Foundation, the unincorporated entity, does not extend to the new corporate entity Acme Foundation Inc.

A qualifying 501(c) must apply for state tax exemption.

How do we apply for an exemption?

To apply for franchise and sales tax exemptions, complete and submit Form AP-204, Texas Application for Exemption – Federal and All Others (PDF) to the Comptroller's office. Include a copy of the IRS-issued exemption determination letter with any addenda. The organization name on the IRS letter must match the organization's legal name as listed in the Articles of Incorporation, Certificate of Formation or governing document. If the IRS letter was issued more than four years ago, you will need to obtain a current verification letter. Send us a copy along with a copy of the original determination letter that granted the exempt status.

To apply for federal exemption or to obtain a current verification letter, contact the IRS at 1-877-829-5500 or visit the IRS Web site.

How do we use the exemption certificate?

When purchasing a taxable item, give the seller a properly completed exemption certificate (Form 01-339, Texas Sales and Use Tax Resale Certificate (PDF)) to document the exempt sale.

If a seller chooses not to accept an exemption certificate, ask the seller to provide a properly completed Assignment of Right to Refund so the organization can request a refund of the tax directly from the Comptroller.

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