<<Prev Rule

Texas Administrative Code

Next Rule>>
TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER OSTATE SALES AND USE TAX
RULE §3.322Exempt Organizations

(a) General policy. This section is administered using the following guiding principles.

  (1) Because exemptions are not favored under the laws of the State of Texas, the provisions of this section shall be strictly interpreted.

  (2) An organization must show by clear and convincing evidence that it meets the requirements of this section and the relevant statutes. Any unresolved question about the qualifications of an organization will result in denial of exempt status.

(b) Entities that must prove exempt status. Entities or organizations that may qualify for exempt status include:

  (1) a nonprofit charitable or eleemosynary organization that devotes all or substantially all of its activities to the alleviation of poverty, disease, pain, and suffering by providing food, clothing, medicine, medical treatment, shelter, or psychological counseling directly to indigent or similarly deserving members of society with its funds derived primarily from sources other than fees or charges for its services. If the organization engages in any substantial activity other than the activities described in this section, it cannot qualify for exemption under this provision because it is not organized for purely public charity. However, if the organization is engaged in activities, other than those described in this section, and the additional activities are incidental to and in support of the activities conducted by the organization that are described in this section, the organization may be considered for this exemption. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the definition of a charitable organization, even if they are nonprofit organizations that perform services that are often charitable in nature, are as follows: fraternal organizations, lodges, fraternities, sororities, service clubs, veterans groups, mutual benefit or social groups, professional groups, trade or business groups, trade associations, medical associations, chambers of commerce, and similar organizations. Although these organizations do not qualify for exemption as charitable organizations, they may qualify for the exemption under Tax Code, §151.310(a)(2), if they obtain an exemption from the Internal Revenue Service (IRS) under Internal Revenue Code (IRC), §501(c). Chambers of Commerce may qualify for exemption under paragraph (6) of this subsection;

  (2) a nonprofit educational organization or governmental entity whose activities are devoted solely to systematic instruction, particularly in the commonly accepted arts, sciences, and vocations, and has a regularly scheduled curriculum that uses the commonly accepted methods of teaching, a faculty of qualified instructors, and an enrolled student body or students in attendance at a place where the educational activities are regularly conducted. An organization that has activities that solely consist of presentation of discussion groups, forums, panels, lectures, or other similar programs, may qualify for the exemption under this provision, if the presentations provide instruction in the commonly accepted arts, sciences, and vocations. An organization cannot qualify for exemption under this provision if the systematic instruction or educational classes are incidental to some other facet of the organization's activities. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the requirements for exemption under this definition are professional associations, business leagues, information resource groups, research organizations, support groups, home schools, and organizations that merely disseminate information by distributing printed publications. Although these organizations do not qualify for exemption as educational organizations, they may qualify for the exemption under Tax Code, §151.310(a)(2), if they obtain an exemption from the IRS under IRC, §501(c);

  (3) a nonprofit religious organization that is an organized group of people who regularly meet for the primary purpose of holding, conducting, and sponsoring religious worship services according to the rites of their sect. The organization must be able to provide evidence of an established congregation that shows regular attendance of these services by an organized group of people. An organization that supports or encourages religion as an incidental part of its overall purpose, or one whose general purpose is to further religious work or instill its membership with a religious understanding, cannot qualify for exemption under this provision. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the requirements for exemption under this definition are conventions or associations of churches, evangelistic associations, churches with membership consisting of family members only, missionary organizations, and groups that organize for the purpose of holding prayer meetings, Bible study, or revivals. Although these organizations do not qualify for exemption as religious organizations, they may qualify for the exemption under Tax Code, §151.310(a)(2), if they obtain an exemption from the IRS under IRC, §501(c);

  (4) a youth athletic organization that is a nonprofit corporation or association that exclusively provides athletic competition among persons under 19 years of age;

  (5) a nonprofit organization that applies for and obtains a determination letter or a group exemption ruling letter from the IRS that states that the organization qualifies for exemption from federal income tax under IRC, §501(c)(3), (4), (8), (10), or (19);

  (6) a nonprofit chamber of commerce that represents at least one Texas city, county, or geographic locality. For the purpose of this section, a chamber of commerce is a perpetual organization devoted exclusively to promoting the general economic interest of all commercial enterprises in the city, county, or areas it represents. The term does not include chamber-like organizations such as trade associations or business leagues that serve a single line or closely related lines of business within a single industry;

  (7) a nonprofit convention and tourist promotional agency organized or sponsored by at least one Texas city or county;

  (8) an electric cooperative formed under the Electric Cooperative Corporation Act (Utilities Code, Chapter 161) and nonprofit electric cooperatives located outside the state;

  (9) a telephone cooperative formed under the Telephone Cooperative Act (Utilities Code, Chapter 162) and nonprofit telephone cooperatives located outside the state;

  (10) a local organizing committee, as defined in Texas Civil Statutes, Article 5190.14, §1(7), that is exempt from federal income tax under IRC, §501(c). The local organizing committee must be authorized by an endorsing municipality, an endorsing county, or more than one endorsing municipality or county acting collectively to pursue an application and submit a bid on the municipality's or county's behalf to a site selection organization for selection as the host site of one or more games or events, as defined in Texas Civil Statutes, Article 5190.14, §§5A, 5B, or 5C;

  (11) any company, department, or association organized for the purpose of answering fire alarms and extinguishing fires or for the purpose of answering fire alarms, extinguishing fires, and providing emergency medical services, the members of which receive nominal or no compensation for their services; and

  (12) nonprofit corporations formed under Local Government Code, Chapter 501 (Development Corporation Act of 1979) or Health and Safety Code, Chapter 221 (Health Facilities Development Act of 1981) when they purchase items for their exclusive use and benefit. The exemption does not apply to items purchased by the corporation to be lent, sold, leased, or rented.

(c) Entities that are always exempt. Certain entities and organizations are exempt under the law and are not required to request and prove exempt status, except to send information as requested by the comptroller to verify its exempt status under this subsection.

  (1) The United States, its unincorporated agencies and instrumentalities. The United States includes all parts of the executive, legislative, and judicial branches and all independent boards, commissions, and agencies of the United States government. Instrumentalities and agencies of the United States include:

    (A) various military entities under the supervision of a base commander;

    (B) organizations that contract with the United States and whose contracts explicitly and unequivocally state that they are agents of the United States;

    (C) organizations wholly owned by the United States or wholly owned by an organization that is itself wholly owned by the United States;

    (D) organizations specifically named as agents of the United States or exempted as instrumentalities of the United States by federal statutes; and

    (E) organizations having substantially all of the following characteristics:

      (i) they are funded by the United States;

      (ii) they carry out a specific program of the United States;

      (iii) they are managed or controlled by officers of the United States;

      (iv) their officers are appointed by the United States;

      (v) they perform commitments of the United States under an international treaty; and

      (vi) they are not organized for private profit;

  (2) any incorporated agency or instrumentality of the United States wholly owned by the United States or by a corporation wholly owned by the United States. "Wholly owned" means total or 100% ownership;

  (3) federal credit unions organized under 12 United States Code, §1768;

  (4) the State of Texas, its unincorporated agencies and instrumentalities; and

  (5) any county, city, special district or other political subdivision of the State of Texas, and any college or university created or authorized by the State of Texas.

(d) Qualification requirements. To qualify for exempt status under subsection (b) of this section, an organization must satisfy all of the following requirements.

  (1) An organization must be organized or formed solely to conduct one or more exempt activities. The comptroller will consider all documents necessary to prove the purpose for which an organization is formed.

  (2) An organization must devote its operations exclusively to one or more exempt activities.

  (3) An organization must dedicate its assets in perpetuity to one or more exempt activities.

  (4) No profit or gain may pass directly or indirectly to any private shareholder or individual. All salaries or other benefits furnished officers and employees must be commensurate with the services actually rendered.

(e) How to obtain exempt status.

  (1) Application. To apply for and obtain notification of exemption from the comptroller, an organization must complete and submit to the comptroller the appropriate application or its equivalent. Applicants should refer to the Guidelines to Texas Tax Exemptions (publication 96-1045) for assistance in completing the proper application for any exemption sought.

  (2) Documentation required. In addition to a properly completed application, an organization must submit with the application all documents requested by the application and comptroller publication 96-1045, Guidelines to Texas Tax Exemptions, all governing documents as indicated by subparagraph (A) of this paragraph, and all IRS documents indicated by subparagraph (B) of this paragraph.

    (A) Governing documents. A copy of each of the organization's governing documents must be submitted with the application as indicated in clauses (i) - (iii) of this subparagraph.

      (i) An unincorporated organization requesting an exemption must include copies of its formation documents, such as bylaws, constitution, articles of association, certificate of formation, or applicable trust agreement, and any related amendments. If the exemption being sought requires that the organization be a nonprofit, the governing documents must state that the organization is a nonprofit.

      (ii) A non-Texas corporation requesting an exemption must include file-stamped copies of its formation documents and certificate of existence from the home state of incorporation, and any related amendments.

      (iii) A non-Texas limited liability company requesting an exemption must include file-stamped copies of its formation documents and certificate of existence from the home state of formation, and any related amendments.

      (iv) Exception. An organization applying for exemption based on its federal exempt status under IRC, §501(c)(3), (4), (8), (10), or (19), is not required to submit file-stamped copies of its governing documents and certificate of existence unless it is a corporation or limited liability company chartered outside the state of Texas.

    (B) IRS documents. If an organization is applying for exemption based on its federal exempt status under IRC, §501(c)(3), (4), (8), (10), or (19), the organization must provide copies of all pages of its IRS determination letter or group exemption ruling letter and include any caveat or addendum that applies. If the original determination letter or group exemption ruling letter is more than four years old, the organization must also include a copy of a recent letter from the IRS to confirm the exemption is still valid. A nonprofit organization that claims Cont'd...

Next Page Previous Page