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.
Yes. Profit entities can be exempt under Internal Revenue Code (IRC) Section 501(c)(2), (16), or (25). There are also exemption categories for certain insurance companies or open-end investment companies that are organized for profit.
To apply for exemption, complete the appropriate application and include the required documentation.
If your organization is applying for exemption:
If your entity is registered in Texas, you can order copies of its formation documents through the Secretary of State's SOS DIRECT system, or you can call (512) 463-5578. Out-of-state entities must contact the filing office in their home state.
Certain 501(c) organizations can apply for exemption on the basis of their federal exempt status.
To apply for a Texas tax exemption as a 501(c) organization, complete Form AP-204, Texas Application for Exemption – Federal and All Others (PDF), and send it to us along with the required documentation listed on the application.
No. A nonprofit religious organization in Texas must apply to the Comptroller for exemption from sales, franchise and hotel occupancy taxes. It must be an established congregation regularly meeting at a particular location to conduct and sponsor religious worship services according to the rites of its sect. To apply for exemption as a religious organization, complete Form AP-209, Texas Application for Exemption – Religious Organizations (PDF), and send it with the documentation listed on the application.
You must file a certificate of formation with the Texas Secretary of State.
Yes, the IRS can revoke or withdraw an entity's federal tax exemption. And 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 in writing if there is a change in its purpose or activities that results in the organization no longer qualifying for exemption. At any time, the Comptroller can request additional information to verify that organization's exempt status is still valid. If the Comptroller determines that an organization is no longer entitled to its exemption, the Comptroller can revoke the exemption.
An organization with a sales tax exemption can issue an exemption certificate (Form 01-339, Texas Sales and Use Tax Resale Certificate (PDF)) instead of paying sales tax on goods and services that further the organization's exempt purpose.
Franchise tax applies to all taxable entities, including corporations whether profit or nonprofit, partnerships (general, limited and limited liability), LLCs, business trusts, professional associations, business associations, joint ventures, incorporated political committees and other legal entities. Until an entity has been granted exemption, franchise tax reports must be filed and any tax due must be paid.
The Comptroller cannot grant exemption to a Texas 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 should apply for exemption so the Comptroller can determine if the entity is eligible. If the entity is eligible for exemption, the Comptroller will issue a tax clearance letter to be filed with the application for reinstatement. As soon as the reinstatement is complete, meaning the entity’s registration is active, the entity should again contact the Comptroller’s office so we can complete the exemption process.
A homeowners' association can be exempt from franchise tax. To qualify, the association must be a nonprofit entity 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 Form AP-206, Texas Application for Exemption – Homeowners’ Associations (PDF), and send it with the documentation listed on the application.
Organizations that have been granted a charitable, religious or educational exemption are exempt from state hotel occupancy tax. When traveling on official business for the organization, employees should provide a properly completed hotel occupancy tax exemption certificate (Form 12-302, Texas Hotel Occupancy Tax Exemption Certificate (PDF)) to the hotel at the time of registration. The hotel may ask for a copy of your exemption letter or verification (required for charitable and religious organizations), such as a printout from the Comptroller's list of exempt entities, showing the organization is exempt from state hotel tax. Local hotel taxes are still due.
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 a refund of state and local hotel taxes paid or reimbursed to employees. County and city agencies and their employees also must pay state and local hotel taxes, but they do not qualify for a refund.
No. Organizations that have been granted an exemption based solely upon federal tax status are not exempt from hotel tax. Read more in Hotel Occupancy Tax Exemptions.
Visit the Comptroller’s Property Tax Assistance Division webpage for information about the availability of property tax exemptions for certain nonprofit organizations.
No. School groups are not exempt by law; they must apply for exemption. Applications are online.
PTAs that are members of the Texas Congress of Parents and Teachers (TCPA) or the National Congress of Parents and Teachers should complete and submit Form AP-207, Texas Application for Exemption – Educational Organizations (PDF), along with 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).
PTOs, and PTAs 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 (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, the Comptroller may require additional information to consider the exemption.
Booster clubs and similar organizations do not qualify for exemption as educational organizations. However, if the club or school support organization is exempt from federal income tax as a 501(c)(3) or 501(c)(4) organization, it would be entitled to exemption from sales tax and, if applicable, franchise tax. These organizations should 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 stating that the organization has qualified as a 501(c)(3) or 501(c)(4) organization.
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. The organization should submit Form AP-204, Texas Application for Exemption – Federal and All Others (PDF), with supporting documentation.
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.
In 2015, the Texas Legislature passed House Bill 855, which requires state agencies to publish a list of the three most commonly used Web browsers on their websites. The Texas Comptroller’s most commonly used Web browsers are Google Chrome, Microsoft Internet Explorer and Apple Safari.