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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

taxes

Frequently Asked Questions About Exemptions

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 franchise tax. Certain nonprofit organizations may also be eligible for property tax exemptions.

How do I apply for exemption?

To apply for exemption, complete the appropriate application and include the required documentation.

If your organization is applying for exemption:

The application asks for a copy of the file-stamped articles of incorporation. Where do I get this document?

If your entity is registered in Texas, you can order copies of your formation documents through the Secretary of State's SOS DIRECT system, or you can call 512-463-5578.

Out-of-state entities must include a file-stamped copy of your organization’s formation documents and a current Certificate of Existence from the Secretary of State or equivalent officer in your home state.

Are 501(c) entities exempt from state taxes?

Certain 501(c) organizations can apply for exemption based on their federal exempt status:

  • If your entity is exempt under 501(c)(3), (4), (8), (10) or (19), it can apply for exemption from sales tax and franchise tax.
  • If your organization is exempt under 501(c)(2), (5), (6), (7), (16), or (25), it can apply for exemption from franchise tax.
  • A 501(c) organization that meets the additional requirements can apply for exemption as a religious, charitable, or educational organization, which allows the organization to be exempt from the state portion of hotel tax, in addition to sales and franchise tax.

Read more about 501(c) 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.

Are churches automatically exempt from franchise, sales and hotel taxes?

No. A nonprofit religious organization in Texas must apply to the Comptroller’s office for exemption from franchise, sales and hotel occupancy taxes.

Read more about religious organization exemptions.

How do I form a nonprofit corporation in Texas?

You must file a certificate of formation with the Texas Secretary of State (SOS).

Can a state tax exemption be revoked?

Yes. The Comptroller’s office can request additional information to verify that an entity's exempt status is still valid. If the Comptroller’s office determines that an entity no longer qualifies for the exemption, we will revoke it.

Also, the IRS can revoke or withdraw an entity's federal tax exemption. 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.

An exempt organization must immediately notify the Comptroller’s office in writing if there is a change in its purpose or activities that results in the organization no longer qualifying for exemption.

Exempt Purchases and Exempt Sales

What can an exempt organization purchase tax-free?

An organization with a sales tax exemption can issue an exemption certificate (PDF) instead of paying sales tax on goods and services that further the organization's exempt purpose.

Must an exempt organization conducting sales collect sales tax?

Generally, exempt organizations must get a sales tax permit and collect and remit sales tax on all goods and taxable services they sell. See our Publication 96-122, Nonprofit and Exempt Organizations – Purchases and Sales for a list of limited exceptions.

You can apply for a sales tax permit online.

Franchise Tax

What are the franchise tax responsibilities of a nonprofit entity?

Franchise tax applies to all taxable entities, regardless of their profit or nonprofit status. Until an entity is granted franchise tax exemption, the entity must file franchise tax reports and pay any tax due.

Are there any franchise tax exemptions available to for-profit entities?

Yes. For-profit entities can apply for exemption from franchise tax if they are

  • organized under Internal Revenue Code (IRC) Section 501(c)(2), (16), or (25)
  • certain insurance companies
  • open-end investment companies
  • solely in the business of manufacturing, selling, or installing solar energy devices
  • recycling operations
  • in the state only to attend a trade show
  • certain credit associations
  • lodges
  • farmers’ cooperative societies
  • housing finance corporations
Can an entity apply for exemption if its registration with the Secretary of State is forfeited?

The Comptroller’s office cannot grant exemption to an entity whose registration is forfeited; the entity must reinstate the charter or certificate of authority before receiving a tax exemption. An entity in this situation must apply for exemption so the Comptroller’s office can determine if the entity qualifies for franchise tax exemption. If the entity does qualify, the Comptroller’s office will issue a tax clearance letter for the exempt entity to file with the application for reinstatement with the SOS. As soon as the reinstatement is complete and the entity’s registration is active, the entity must contact the Comptroller’s office to complete the exemption process.

Can a homeowners' association qualify for exemption from franchise tax?

Yes, a homeowners' association can apply for exemption from franchise tax.

Read more about homeowners associations exemptions.

Hotel Tax

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 the state portion of hotel occupancy tax. When traveling on official business for such an organization, an employee must give a completed Form 12-302, Texas Hotel Occupancy Tax Exemption Certificate (PDF) to the hotel at the time of registration. The hotel can ask for a copy of the entity’s exemption letter or verification (required for charitable and religious organizations), such as a printout from our list of exempt entities, showing the organization is exempt from state hotel tax. Local hotel taxes are still due.

What organizations or individuals are exempt from paying both state and local hotel occupancy taxes?

The following are exempt from paying both state and local hotel occupancy taxes:

  • The U.S. 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, including the following:
    • Heads of state agencies
    • Members of state boards and commissions
    • Judicial officials at the district court level and above
    • State legislators
    • Legislative employees
  • Permanent residents who occupy a room for at least 30 consecutive days (any interruption in the 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 following conditions apply:
    • The entity must have a letter of hotel tax exemption from the Comptroller's office.
    • The reason for the exemption must 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 can request refunds of state and local hotel taxes paid or reimbursed to employees. County and city agencies and their employees must pay state and local hotel taxes and do not qualify for refunds.

School Organizations

What information must a parent-teacher association (PTA) or organization submit to apply for exemption?

PTAs that are members of the Texas Congress of Parents and Teachers (Texas PTA) or the National Congress of Parents and Teachers (National PTA) must complete and submit Form AP-207, Texas Application for Exemption – Educational Organizations (PDF). These organizations must include a letter from their parent organization confirming that it is a subordinate or provide the parent organization website where this information can be verified.

PTOs and PTAs that are not members of either the state or national organization must complete the same application and give a copy of the organization's governing documents such as a Certificate of Formation or Certificate of Registration. If the governing document does not clearly establish the organization's relationship with the school and that it functions as a PTO or PTA, the Comptroller’s office can require additional information to consider the exemption.

Read more about PTO and PTA exemptions.

Are booster clubs and other school support organizations automatically exempt from state taxes as educational organizations?

Booster clubs and similar organizations do not qualify for exemption as educational organizations. If the club or school support organization is exempt from federal income tax as a 501(c)(3) or 501(c)(4) organization, it is eligible for exemption from sales tax and, if applicable, franchise tax. To apply for exemption, the organization must submit Form AP-204, Texas Application for Exemption – Federal and All Others (PDF), along with a copy of the determination letter from the Internal Revenue Service.

Read more about booster club exemptions.

Can youth athletic organizations qualify for tax exemptions?

Yes, a youth athletic organization can 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. To apply for exemption, the organization must submit Form AP-204, Texas Application for Exemption – Federal and All Others (PDF), with supporting documentation (PDF).

Read more about youth athletic organization exemptions.

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