taxes

Charitable

For a nonprofit charity to be eligible for a tax exemption, it must devote the majority of its activities to alleviating poverty, disease, pain and suffering by providing food, medical treatment, shelter, clothing or counseling directly to individuals for little or no fee. The charity must get its primary funds from sources other than those fees.

Exemption from federal tax as a 501(c) organization is not required to qualify for state tax exemption.

What kind of exemption is my charity eligible for?

Charities that are exempt under IRC Section 501(c)(3), (4), (8), (10) or (19) can apply for a sales tax exemption on items purchased for use by the organization. However, exempt organizations must collect tax on most of their sales of taxable items.

Charities that are exempt under IRC Section 501(c)(2), (3), (4), (5), (6), (7), (8), (10), (16), (19) or (25) can apply for a franchise tax exemption.

A qualifying charity is exempt from the state portion of hotel occupancy tax unless its exemption is based on a federal exemption.

A qualifying charity must apply for exemption.

How do we apply for an exemption?

Complete and submit Form AP-205, Texas Application for Exemption – Charitable Organizations (PDF) to the Comptroller's office, and provide all required documentation listed in the application. Unincorporated organizations must include a copy of the organization's governing document, such as the bylaws or constitution. The document must show that the organization is nonprofit. We will review the corporation's formation documents on file with the Texas Secretary of State to verify that the corporation's purpose is consistent with requirements. Non-Texas corporations must also include a copy of the corporation's formation documents and a current Certificate of Existence issued by their state of incorporation.

If your application is approved, we'll send a letter or email notification. The notification includes links to print additional verification letters and the exemption certificate (Form 01-339, Texas Sales and Use Tax Resale Certificate (PDF)) to present to vendors.

How do we use the exemption certificate?

When purchasing a taxable item, give the seller a properly completed exemption certificate 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.

Charities should present Form 12-302, Texas Hotel Occupancy Tax Exemption Certificate (PDF) to a hotel to claim exemption from the 6 percent state hotel occupancy tax. Local hotel tax must be paid, with some exceptions.

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