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.

Are there any exemptions available for for-profit entities?

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.

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:

Your 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 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.

Are 501(c) entities exempt from state taxes?

Certain 501(c) organizations can apply for exemption on the basis of their federal exempt status.

  • If your entity is exempt under 501(c)(3), (4), (8), (10) or (19), it qualifies for exemption from sales tax and franchise tax.
  • If your organization is exempt under 501(c)(2), (5), (6), (7), (16), or (25), It qualifies 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 entitles the organization to exemption from the state portion of hotel tax, in addition to sales and franchise tax.

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.

Read more about 501(c) exemptions.

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

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.

Read more about religious organization exemptions.

How can our organization apply for an exemption from federal taxes?

Contact the Internal Revenue Service. Read their publication Tax-Exempt Status For Your Organization, or call them toll free at 1-877-829-5500.

How do I form a nonprofit corporation in Texas?

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

Can a state tax exemption be revoked?

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.

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 (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.

Should an exempt organization making sales collect sales tax?

Yes. Generally, exempt organizations must obtain sales tax permits and collect and remit sales tax on all goods and taxable services they sell. See our publication Exempt Organizations – Sales and Purchases (PDF) 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, 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.

Can an entity apply for exemption if its registration with the Secretary of State is forfeited?

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.

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

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.

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 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.

What organizations or individuals 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 heads of state agencies, members of state boards and commissions, judicial officials at the district court level and above, state legislators and 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 entity must have a letter of hotel tax exemption from the Comptroller's office.
    • The reason for the exemption should 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 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.

Property Tax

What property tax exemptions are available?

Visit the Comptroller's Property Tax Assistance Division webpage for information about the availability of property tax exemptions for certain nonprofit organizations.

School Organizations

Are parent-teacher organizations and associations (PTOs and PTAs) automatically exempt from state taxes?

No. School groups are not exempt by law; they must apply for exemption. Applications are online.

What information should a parent teacher association or organization submit to apply for exemption

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.

Read more about PTO and PTA exemptions.

What about booster clubs and other school support organizations?

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.

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. The organization should submit Form AP-204, Texas Application for Exemption – Federal and All Others (PDF), with supporting documentation.

Read more about youth athletic organization 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.