Sales and Purchases
Susan Combs, Texas Comptroller of Public Accounts DECEMBER 2010
Exempt Status Overview subordinate under the parent organization’s
The Texas Tax Code provides tax exemptions group exemption, the organization must
for certain qualifying organizations for sales complete the appropriate exemption applica-
tax, hotel occupancy tax and franchise tax. tion, and include:
The exemptions for which an organization • a letter from the parent organization that
might qualify are determined by the organiza- states the organization is a recognized sub-
tion’s purpose, activities and its formation. ordinate under the group exemption
• the basis of the group exemption [i.e.
Exemption Criteria 501(c)(3), 501(c)(6), religious, etc.]
Exemption from these state taxes are based • the date the organization was first recog-
have applied for and
largely on an organization’s affiliation with its nized as a subordinate under that group
received a letter of
parent entity, assuming the following criteria: exemption.
exemption from sales
tax don’t have to pay • the organization is a recognized subordi- Exemption applications are available online at
sales and use tax when nate under the parent organization’s group www.window.state.tx.us/taxinfo/exempt.
they buy, lease or rent exemption;
taxable items that • the parent organization’s group exemp- If the parent organization’s 501(c) federal
are necessary to the tion meets the requirements for exemption group exemption has not yet been estab-
organization’s exempt from one or more of these state taxes; and lished, the parent organization must submit
function. • the parent organization’s group exemption to the Comptroller:
has been established on the Comptroller’s • a copy of the parent organization’s Internal
records. Revenue Service (IRS) 501(c) group
exemption ruling letter
The parent organization’s group exemption • the IRS four-digit group exemption num-
may be classified as a federal group exemp- ber www.irs.gov.
tion under one of the following 501(c) sec-
tions of the Internal Revenue Code (IRC): Examples of Non-Taxable Entities
501(c)(2), (3), (4), (5), (6), (7), (8), (10), (16), Entities that are exempt by law do not need
(19) and (25). to apply for exemption. Examples of legally
For more information, exempt entities include:
visit our website
The group exemption may also be under • the U.S. government, its political subdivi-
Receive tax help another category of exemption, such as the sions, agencies and departments, and all
via e-mail at religious, educational or charitable exemption branches of its military;
email@example.com. provisions within the state statutes. • Texas state and local governments, their
agencies, departments, cities, school dis-
Exemption Application tricts and other political subdivisions;
For an organization to be exempt from these • Federal Credit Unions organized under 12
state taxes based on its recognition as a United States Code, §1768
Exempt Organizations: Sales and Purchases
Texas public schools, colleges and universi- exemption certificate is not required on its
ties are exempt from sales tax under Section purchases. Foreign governments and gov-
151.309 of the Texas Tax Code. Texas colleg- ernment agencies from other states are not
es, universities and all public and private ele- exempt from Texas sales and use tax.
mentary and secondary schools are exempt
from state hotel tax under Section 156.102. Retailers
Retailers must collect tax from an exempt
Parent-teacher associations and booster organization unless a valid exemption certifi-
clubs must apply for exemption as they cate or government purchase voucher is pro-
are generally not covered by the school’s vided. Retailers are not required under Texas
exempt status. law to accept a claim for exemption, but may
choose to do so by accepting, in good faith, a
The Tax-Exempt Entity Search lists entities properly completed exemption certificate.
with a current exemption from franchise,
sales and/or hotel tax. Entities that are If a retailer chooses not to honor an exemp-
exempt by law will not normally be listed tion certificate, the exempt organization can
on the search. View the search online at ask the seller to provide a properly complet-
Generally, an exempt http://window.state.tx.us/taxinfo/exempt/ ed Assignment of Right to Refund so the
organization must exempt_search.html. purchaser can request a refund of the tax
get a sales tax permit directly from the Comptroller.
and collect and remit Exemptions: Apply Online
sales tax on all tax- An organization can apply for exemption Individuals
able items it sells. online by using the appropriate application An authorized agent or employee can make
form. tax-free purchases for an exempt organi-
zation by giving the vendor a completed
Guidelines to Texas Tax Exemptions (96-1045) exemption certificate. Items purchased tax
can be found online at www.window.state. free by an exempt organization cannot be
tx.us/taxinfo/taxpubs/tx96_1045.html. used for the personal benefit of an individu-
al or other private party.
Tax-Exempt Purchases When buying an item to be donated to an
Organizations that have received a let- exempt organization, an individual can give
ter of sales tax exemption from the Texas the seller an exemption certificate in lieu of
Comptroller do not have to pay sales and paying tax. If the individual uses the item
use tax on taxable items they buy, lease or before donating it, however, the exemption
rent if the items are necessary to the organi- is lost and tax is due.
For more information, zation’s exempt function.
visit our website An employee of an exempt organization
www.window.state.tx.us. Exempt organizations should claim an cannot claim an exemption when buying
Receive tax help taxable items of a personal nature, even
exemption at the time of purchase by pro-
via e-mail at
viding a properly completed exemption if the organization gives an allowance or
certificate in lieu of paying tax to the retail- reimbursement for such items. For example,
er. A government entity’s purchase voucher meals, toiletries, clothing and laundry ser-
is sufficient proof of exempt status and an vices are for personal use and are taxable.
Exempt Organizations: Sales and Purchases
Anyone traveling on official business for an Should an exempt organization collect
exempt organization must pay sales tax on sales tax?
taxable purchases such as parking, whether Exempt organizations must get a sales tax
reimbursed per diem or for actual expenses permit http://window.state.tx.us/taxpermit
incurred. and collect and remit sales tax for all taxable
items it sells. Exemptions are for purchases,
A sales tax exemption does not include not sales, though some exceptions are
taxes on the purchase, rental or use of motor detailed below.
vehicles. Motor vehicle tax information is
provided below. Examples of Tax-Free Sales
Refunds An organization does not have to register
An exempt nonprofit organization is not eli- for a sales tax permit if all its sales are of
gible to receive refunds for purchases made on exempt items, or sales made through tax-
or after Sept. 1, 2009, if the purchase was made free fundraisers.
prior to the postmark date of the organiza-
tion’s application for exemption, or the date of Meals and Food Products
the sales tax liability assessment as a result of a Exempt organizations do not have to collect
Comptroller audit, whichever is earlier. sales tax on meals and food products, includ-
ing candy and soft drinks, if the items are:
If the Comptroller determines the organi- • sold by churches or at church functions
zation met exemption requirements for a conducted under the authority of a church;
period prior to Sept. 1, 2009, based on the • sold or served by a public or private
laws in effect during that period, purchases school, school district, student organiza-
made by the organization within that period tion or parent-teacher association in an
will be eligible for a sales tax refund, subject elementary or secondary school during
to the four-year statute of limitations. the regular school day by agreement with
proper school authorities, including vend-
These provisions apply to sales and use ing machine sales; or
taxes paid by an organization directly to the • sold by a member or a volunteer of a non-
Comptroller’s office or to vendors and to profit organization devoted exclusively
refund claims filed with the Comptroller’s to education or to physical or religious
office or with vendors. These provisions do training, or by a group associated with
not apply to governmental entities exempted private or public elementary and second-
under Tax Code Section 151.309. ary schools as part of an organization’s
fund-raising drive, when all net proceeds
The Tax-Exempt Entity Search can be used from the sale go to the organization for its For more information,
to verify the effective date of an organiza- exclusive use. visit our website
tion’s exemption qualification. Contact our www.window.state.tx.us.
office to confirm the organization’s exempt Receive tax help
Note: Alcoholic beverages are taxable. Sales
via e-mail at
status and eligibility for a refund of sales tax of alcoholic beverages made by the holder firstname.lastname@example.org.
paid prior to Sept. 1, 2009, by calling (800) of a mixed beverage permit are subject to
252-5555, or e-mail us at exempt.orgs@cpa. the 14 percent mixed beverage gross receipts
state.tx.us tax. Sales of beer and wine made by the
holder of a beer and wine only permit are are prohibited from collecting and keeping
subject to sales tax. taxes on these transactions.
Annual Banquets and Suppers The designated one-day, tax-free sale day is
All volunteer, organizations can hold a tax- either the day the vendor delivers the items
free annual banquet or other food sale pro- to the exempt organization or the day the
vided the event: organization delivers the items to its custom-
• is not professionally catered; ers. Persons buying from surplus inventory
• is not held in a restaurant, hotel or similar on the designated date do not owe tax. For
place of business; example, a church group selling cookbooks
• is not in competition with a retailer may accept pre-orders without collecting tax
required to collect tax; and if the day the cookbooks will be delivered to
• the food is prepared, served and sold by customers is designated as one of the group’s
members of the organization. tax-free fundraisers. Surplus cookbooks sold
during the same day also qualify for the
An employee of an Note: The exemption does not apply to the exemption. Surplus cookbooks sold on other
exempt organiza- sale of alcoholic beverages. days are taxable unless sold at the group’s
tion cannot claim an other tax-free fundraiser.
exemption when buy- Auctions, Rummage Sales and Other
ing taxable items of a Fundraisers If two or more groups together hold a one-
personal nature, even Each chapter of an exempt organization day, tax-free sale, the event counts as one tax-
if the organization under the religious, educational or charitable free sale for each participating organization.
gives an allowance categories, and organizations exempted from
or reimbursement for
sales tax based on their IRS Section 501 (c) If an exempt organization is purchasing tax-
(3), (4), (8), (10) or (19) status, can hold two able items for resale during its designated tax-
one-day, tax-free sales or auctions each cal- free sale days, and it holds a sales tax permit,
endar year (January – December). the organization may either give the retailer a
resale certificate, Form 01-339 (front), or an
Youth athletic organizations, volunteer fire exemption certificate, Form 01-339 (back), to
departments, chambers of commerce and purchase the items tax free.
governmental entities may not hold tax-free
sales or auctions. A non-permitted exempt organization, how-
ever, may purchase items for resale tax free
One-Day Sales by issuing an exemption certificate to the
For one-day sales, exempt organizations are vendor for items sold during its two one-day,
not required to collect sales tax. This exemp- tax-free sales.
For more information, tion does not apply to items sold for more than
visit our website $5,000, unless the item is manufactured by Student Organizations (Higher Education)
www.window.state.tx.us. the organization or the item is donated to the College or university student organiza-
Receive tax help organization and not sold back to the donor. tions affiliated with an institution of higher
via e-mail at
education can hold a one-day, tax-free sale
For purposes of the exemption, “one day” is each month. The organization must have
counted as 24 consecutive hours. These days a primary purpose other than engaging in
should be pre-designated so purchasers are business or performing an activity designed
aware of the tax exemptions. Organizations to make a profit, and the purpose of the sale
must be to raise funds for the organization. more than four fundraising events per calen-
This exemption does not apply to items dar year of no more than 20 days per event.
sold for more than $5,000, unless the item
is manufactured by the organization or the Amusement Services
item is donated to the organization and not The sale of an amusement service provided
sold back to the donor. exclusively by an exempt organization, other
than an IRS Section 501(c)(7) organization,
Non-Qualifying Fundraisers: Acting as an is exempt from sales tax as long as the pro-
Agent or Sales Representative ceeds do not benefit an individual except
When engaging in fundraising activities, an of a purely public charity See Rule 3.298,
exempt organization needs to identify the Amusement Services. For example, the sale
seller of the taxable items in order to deter- of a ticket to a school carnival, dance, ath-
mine responsibility for collecting tax. letic event or musical concert is exempt.
In some fundraising activities, an exempt orga- For an event to qualify for exemption, the
nization will enter into a contract with a pri- organization must distinguish itself as the
vate, for-profit entity to sell taxable items. For sole provider in advertising (for example,
example, a group may receive a commission billboards, radio, television and other media
for holding a book fair or for selling candy, promoting the event), as well as on the face of
gift wrap, or similar items, or the group will be the physical tickets. Tickets should reflect that
provided with sales brochures and take orders the exempt organization is the provider, and
for fulfillment by the for-profit entity. The that the event is exempt from Texas sales and
exempt entity may collect the funds and remit use tax.
an agreed portion to the for-profit entity. In
these cases, the fundraising firm is considered Can a nonprofit organization hire a for-
the seller and is responsible for collection of profit entity?
applicable sales and use taxes. Exempt organi- A nonprofit organization is allowed to hire a
zations are not responsible for sales taxes and for-profit entity to supply expertise required
does not use one of the organization’s tax-free to produce an event as long as the for-profit
sales days for the fundraiser. entity is not also considered a provider of
the amusement service.
Many fundraising companies include sales tax
due in the selling price of items. This practice Membership Dues and Fees
is acceptable when the for-profit company Nonprofit groups’ membership dues and
discloses on the invoices or order brochures fees are tax exempt. Country clubs and simi-
that Texas sales tax is included in the sales lar organizations that provide amusement
price. This allows the company to remit to the services do not qualify for this exemption. For more information,
state any due sales taxes. In this instance, the visit our website
exempt organization is not required to collect Publications www.window.state.tx.us.
any tax amount over the sales price. Periodicals and writings are tax exempt if Receive tax help
via e-mail at
published and distributed by a religious,
Senior Citizens Groups philanthropic, charitable, historical, scientific
Nonprofit senior citizen groups do not have or IRS 501(c)(3) organization. Materials pub-
to collect or remit sales tax on items they lished by educational organizations do not
make and sell, provided they do not have qualify for this exemption.
Hotel Occupancy Tax exemption. For a representative who is not
Charitable, Educational or Religious an employee, the exempt organization must
Organizations pay the hotel directly with its funds (e.g.,
Charitable, educational or religious orga- organization check, organization credit card
nizations that have received a letter of tax or direct billing by the hotel).
exemption from the Comptroller may claim
exemption from the 6 percent state hotel How to Claim Hotel Tax Exemption
occupancy tax. Local hotel tax must be paid, A completed Texas Hotel Occupancy Tax
with some exceptions. Exemption Certificate, must be presented
to the hotel to claim the exemption.
An organization can apply for exemption
by using the appropriate application form. An exemption certificate may be accepted,
in good faith, when presented with the
Guidelines to Texas Tax Exemptions (96- supporting documentation described in
1045) provides more details on the exemp- Rule 3.161(c)(2).
The Tax-Exempt Entity Search lists organi-
Entities Exempt from State and Local zations that are exempt from sales, franchise
Hotel Occupancy Tax and/or hotel occupancy taxes. Note: Entities
Entities exempt from both state and local not exempt by law might not be listed in this
hotel occupancy tax include: search.
• the U.S. government and its agencies,
departments and all branches of the U.S. Motor Vehicle Sales and Use Tax
military. Government contractors are not Motor vehicle sales tax exemptions are in
exempt; very limited. The following qualifying orga-
• foreign diplomatic personnel issued a nizations may claim an exemption from
hotel tax exemption card by the U.S. motor vehicle tax at the time of purchase on
Department of State Office of Foreign the Application for Certificate of Title.
• designated Texas state officials who are Some nonprofit emergency medical service
issued a hotel tax exemption photo ID providers and volunteer fire departments
or card. can buy fire trucks and emergency medical
• nonprofit entities exempt from tax by law, response vehicles tax free.
other than the hotel tax, and who have
received a letter of tax exemption from Churches do not have to pay tax when
the Texas Comptroller. they purchase, rent or lease vans and buses
For more information, designed to carry more than six passengers,
visit our website Texas state agencies are not exempt, but as long as the vehicle is used at least 80 per-
www.window.state.tx.us. may apply for a refund of hotel tax paid by cent of the time to transport people to and
Receive tax help from church services or religious meetings.
employees to a hotel.
via e-mail at
Tax is due, however, on vehicles purchased
Traveling Employees for a minister’s personal use.
An employee of an exempt organization
traveling on official business is exempt. Licensed childcare facilities that provide
The manner of payment does not affect the 24-hour residential care in a single residential
group, both to children who do not require • churches or religious societies – no tax is
specialized services or treatment and children due if the vehicle is designed to carry more
who are emotionally disturbed, may claim an than six passengers and at least 80 percent
exemption on the purchase, rental or lease of of the vehicle’s operating time is used to
a vehicle that will be used primarily in trans- provide transportation to and from church
porting children residing at the facility. or religious services or meetings. A vehicle
rented for the official or personal use of a
Motor Vehicle Gifts and Nonprofit minister or other church or organizational
Organizations members is not exempt, even if the vehicle
A vehicle that is donated to, or given by, will be used for a church sponsored activity.
a nonprofit service organization qualify- • certain childcare facilities – no tax is due
ing under the Internal Revenue Code, Sec. when renting a vehicle to a qualified resi-
501(c)(3) is eligible for the $10 gift tax. dential childcare facility to be used primar-
ily to transport children residing in the
To document a gift, both the donor and facility. A qualified residential child-care
person receiving the vehicle must complete facility means one licensed under Chapter
a joint notarized Affidavit of Motor Vehicle 42 Human Resources Code to provide
Gift Transfer (Form 14-317) describing the residential care 24 hours a day in a single
transaction and the relationship between the residential group to children who do not
parties. This document should be provided to require specialized services or treatment and
the county tax assessor-collector along with children who are emotionally disturbed.
the Application for Certificate of Title.
How to Claim Rental Vehicle Exemption
Motor Vehicles Rentals To claim an exemption when renting a qual-
The following organizations may claim a tax ifying motor vehicle, the organization must
exemption when renting a motor vehicle: include a Motor Vehicle Rental Exemption
• public agency – a public agency is an Certificate to the rental contract.
instrumentality of the U.S. government or
a department, commission, board, office, The certificate must be signed by an autho-
institution or other agency of this state rized representative of the group or organi-
or of a county, city, town, school district, zation that is renting the vehicle.
hospital district, water district or other
special district or authority or political Vehicle rentals to other nonprofit or public
subdivision created by or under the Texas service organizations, even if the organiza-
Constitution or statutes. tion is funded by a public agency, are not
eligible for exemption.
For more information,
visit our website
Receive tax help
via e-mail at
Texas Comptroller of Public Accounts • Publication #96-122 • Revised December 2010
For additional copies write: Texas Comptroller of Public Accounts; 111 East 17th Stree; Austin, Texas 78711-1440
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TEXAS SALES AND USE TAX EXEMPTION CERTIFICATION
Name of purchaser, firm or agency
Address (Street & number, P.O. Box or Route number) Phone (Area code and number)
City, State, ZIP code
I, the purchaser named above, claim an exemption from payment of sales and use taxes (for the purchase of taxable
items described below or on the attached order or invoice) from:
Street address: City, State, ZIP code:
Description of items to be purchased or on the attached order or invoice:
Purchaser claims this exemption for the following reason:
I understand that I will be liable for payment of all state and local sales or use taxes which may become due for failure to comply with
the provisions of the Tax Code and/or all applicable law.
I understand that it is a criminal offense to give an exemption certificate to the seller for taxable items that I know, at the time of purchase,
will be used in a manner other than that expressed in this certificate, and depending on the amount of tax evaded, the offense may range
from a Class C misdemeanor to a felony of the second degree.
Purchaser Title Date
NOTE: This certificate cannot be issued for the purchase, lease, or rental of a motor vehicle.
THIS CERTIFICATE DOES NOT REQUIRE A NUMBER TO BE VALID.
Sales and Use Tax "Exemption Numbers" or "Tax Exempt" Numbers do not exist.
This certificate should be furnished to the supplier. Do not send the completed certificate to the Comptroller of Public Accounts.