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it will not be considered as having been organized for purely public
charity, and therefore, will not 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 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.
Even though not organized for profit and performing services that
are often charitable in nature, these types of organizations do not
meet the requirements for exemption under this provision. Although
these organizations do not qualify for exemption under this category
of exemption as charitable organizations, they may qualify for the
exemption under Tax Code, §171.063, if they obtain an exemption
from the IRS under IRC, §501(c).
(5) Nonprofit entity organized for educational purposes.
A nonprofit entity seeking a franchise tax exemption as an educational
organization must show that its activities are devoted solely to systematic
instruction, particularly in the commonly accepted arts, sciences,
and vocations, and has a regularly scheduled curriculum, using 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 entity
that has activities consisting solely of presenting public discussion
groups, forums, panels, lectures, or other similar programs, may qualify
for exemption under this provision, if the presentations provide instruction
in the commonly accepted arts, sciences, and vocations. The entity
will not be considered 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 via tangible or electronic media. Although
these organizations do not qualify for exemption under this category
of exemption as educational organizations, they may qualify for the
exemption under Tax Code, §171.063, if they obtain an exemption
from the IRS under IRC, §501(c).
(6) Certain homeowners' associations. A nonprofit entity
requesting franchise tax exemption as a homeowners' association must
prove that it meets all requirements to qualify for the exemption.
The entity must show that it is organized and operated to obtain,
manage, construct, and maintain the property in or of a residential
condominium or residential real estate development. The entity also
must prove that the condominium project, or, for a real estate development,
the related property, is legally restricted for use as residences.
Furthermore, the entity must establish that the collective resident
owners of individual lots, residences or units control at least 51%
of the votes of the entity and that voting control, however acquired,
is not held by: a single individual or family; one or more developers,
declarants, banks, investors, or other similar parties. For example,
an association is formed for a residential condominium consisting
of 12 units with each unit being entitled to one vote. Each of five
individuals separately owns and occupies one unit, a total of five
units. A sixth individual owns two units, living in one unit and leasing
the other. A seventh individual owns and leases the remaining five
units. None of the owners are related. In determining whether the
collective resident owners control at least 51% of the votes of the
organization, the sixth owner is a resident owner regarding the one
unit in which the owner lives and an investor regarding the other.
The collective resident owners, therefore, have a total of six votes.
Consequently, since the collective resident owners only have 50% of
the votes of the entity, the association does not meet the requirement
that the resident owners must control at least 51% of the votes of
the organization. Accordingly, the entity does not qualify for the
franchise tax exemption as a homeowners' association.
(e) Revocation, withdrawal, or loss of exemptions.
(1) An entity that no longer qualifies for the franchise
tax exemption is required to notify the comptroller in writing of
its change in status. Except as provided in paragraph (2) of this
subsection, if at any time the comptroller has reason to believe that
an exempt entity no longer qualifies for exemption, the comptroller's
representative will notify the entity that its exempt status is under
review. The comptroller's representative may request additional information
necessary to ascertain the continued validity of the entity's exempt
status. If the comptroller determines that an entity is no longer
entitled to its exemption, notification to that effect will be sent
to the entity. The effective date of revocation is the date the entity
no longer qualified for the exemption. The day immediately following
the date of withdrawal, loss, or revocation shall be the beginning
date for determining the entity's privilege period and for all other
purposes related to franchise tax.
(2) For nonprofit entities granted an exemption under
Tax Code, §171.063, the revocation, withdrawal, or loss of the
federal income tax exemption automatically terminates the franchise
tax exemption. A nonprofit entity that no longer qualifies for the
federal income tax exemption which was the basis for obtaining the
franchise tax exemption must notify the comptroller in writing within
30 days of its change in status and must provide a copy of the notice
of such revocation, withdrawal, or loss. The effective date of withdrawal
or loss is the date of withdrawal or loss of the federal tax exemption.
The effective date of a revocation is the date the IRS serves written
notice of the revocation to the non-profit entity or the date the
IRS serves written notice of revocation to the comptroller, whichever
is earlier. The day immediately following the date of withdrawal,
loss, or revocation shall be the entity's beginning date for determining
its privilege periods and for all other purposes of the franchise
tax.
(3) An electric cooperative entity previously exempted
from franchise tax under Tax Code, §171.079 (Exemption--Electric
Cooperative Corporation), that subsequently participates in a joint
powers agency thereby loses its franchise tax exemption. The commencing
date of participation in the joint powers agency shall be considered
the entity's beginning date for purposes of determining the entity's
privilege periods and for all other purposes of the franchise tax.
The electric cooperative must notify the comptroller in writing that
it is a participant in a joint powers agency within 30 days after
the commencing date of its participation.
(f) Federal exemption. An entity meeting the requirements
of any paragraph of this subsection establishes its exempt status
by furnishing to the comptroller a copy of a current exemption letter
from the IRS.
(1) A nonprofit entity that has been exempted from
federal income tax under the provisions of IRC, §501(c)(3) -
(8), (10), (19); or
(2) any entity that has been exempted from federal
income tax under the provisions of IRC, §501(c)(2) or (25), if
the entity or entities for which it holds title to property are either
exempt from or not subject to the franchise tax; and
(3) any entity that has been exempted from federal
income tax under IRC, §501(c)(16).
(g) Solar energy devices exemption. An entity engaged
solely in the business of manufacturing, selling, or installing solar
energy devices is exempted from the franchise tax. For purposes of
this section, the term "solar energy device" includes, but is not
limited to:
(1) devices used in the conversion of solar thermal
energy into electrical or mechanical power;
(2) devices used in the photovoltaic (solar cell) generation
of electricity;
(3) systems used in the heating of water and the heating
and cooling of structures by use of solar collectors to gather the
sun's energy; and
(4) heat pumps used as an integral part of a system
designed to make the best combined use of solar energy and conventional
heating.
(h) Recycling operation exemption. An entity engaged
solely in the business of recycling sludge is exempt from franchise
tax. For purposes of this subsection, "sludge" means solid, semisolid,
or liquid waste generated from a municipal, commercial, or industrial
wastewater treatment plant, water supply treatment plant, or air pollution
control facility, excluding the treated effluent from a wastewater
treatment plant, as provided under Health and Safety Code, Chapter
361 (Solid Waste Disposal Cont'd... |
