| (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 at a designated physical location
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.
Cont'd... |
