| (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 Act), §361.003 (Definitions).
(i) Provisional exemptions.
(1) If established with the comptroller, the following
entities may be granted a temporary exemption from franchise tax:
(A) a nonprofit entity that has applied for exemption
from federal income tax under IRC, §501(c)(3) - (8), (10), (19);
or
(B) an entity that has applied for exemption from federal
income tax under IRC, §501(c)(2) or (25), if the entity or entities
for which it holds title to property is either exempt from or not
subject to the franchise tax; and
(C) an entity that has applied for exemption from federal
income tax under IRC, §501(c)(16).
(2) To obtain a temporary franchise tax exemption with
the comptroller, an entity that has applied for but has not yet received
a letter of exemption from the IRS must timely file, as provided in
paragraph (6) of this subsection, with the comptroller:
(A) a copy of the application for recognition of exemption
that has been filed with the IRS; and
(B) a copy of:
(i) a written notice from the IRS stating that the
application for recognition of exemption has been received; or
(ii) a receipt as proof that the application has been
sent to the IRS by means of the United States Postal Service, other
carrier, or hand delivery to the IRS.
(3) Paragraph (2)(A) and (B)(ii) of this subsection,
applies only if the organization has filed its application for recognition
of exemption during the 14th or 15th month after its beginning date.
Beginning date means:
(A) for an entity organized under the laws of this
state, the date on which the entity's certificate of formation or
other similar document takes effect; and
(B) for a foreign entity, the date on which the entity
begins doing business in this state.
(4) If the information required in paragraph (2)(A)
and (B)(i) of this subsection is provided in a timely manner, as provided
in paragraph (6) of this subsection, a 90-day provisional franchise
tax exemption will be granted.
(5) An entity qualifying under paragraph (2)(A) and
(B)(ii) of this subsection, will be granted a 90-day provisional exemption
with the condition that a copy of the notice required in paragraph
(2)(B)(i) of this subsection be provided to the comptroller within
30 days from the date of the letter notifying the entity of the provisional
exemption. If the IRS notification is not provided within the 30-day
period, the provisional exemption will be canceled. An entity whose
provisional exemption is canceled will be subject to all tax, penalty,
and interest that has accrued since the entity's beginning date.
(6) The information necessary for obtaining a temporary
franchise tax exemption will be considered to be provided to the comptroller
in a timely manner if:
(A) the application for recognition of exemption is
provided to the IRS within their timely filing guidelines; and
(B) the information required in paragraph (2)(A) and
(B)(i) or (B)(ii) of this subsection, is postmarked within 15 months
after the day that is the last day of a calendar month and that is
nearest to the entity's beginning date.
(7) Before the expiration of the 90-day provisional
exemption, the entity must provide the comptroller a copy of the letter
from the IRS showing that the decision on the federal exemption is
still pending or stating that the federal exemption is either granted
or denied.
(8) If the comptroller is notified as required in paragraph
(7) of this subsection, that the decision on the federal exemption
is still pending, an extension of the provisional exemption may be
considered.
(9) If the information in paragraph (7) of this subsection,
is not provided as required, the provisional exemption may be canceled.
If the provisional exemption is canceled, the entity will be responsible
for all franchise tax reports and payments that have become due since
its beginning date, and penalty and interest will be based on the
original due date of each report.
(10) An entity that provides the comptroller a copy
of the letter from the IRS stating that the federal exemption has
been granted will be considered for franchise tax exemption under
subsection (f) of this section.
(11) If the federal exemption is denied by the IRS,
the entity is responsible for all franchise tax reports and payments
that have become due since its beginning date and interest will be
based on the original due date of each report. Late filing and payment
penalties will be waived for any reports and payments postmarked within
90 days after the date of the final denial of the federal exemption.
The penalty waiver process will begin when the entity submits a written
request for penalty waiver and a copy of the letter denying the federal
exemption when filing reports and payment.
(j) Trade show exemption. See Tax Code, §171.084
(Exemption--Certain Trade Show Participants), for the requirements
for exemption for certain foreign entities that participate in trade
shows in Texas.
(1) Notification to comptroller. Entities need not
apply for an exemption under Tax Code, §171.084.
(A) If a foreign entity has obtained a registration
or has already notified the comptroller that it is doing business
in Texas, the entity must notify the comptroller in writing by the
due date of the first report for which the entity is exempt that the
report and payment are not due because the entity is exempt under
Tax Code, §171.084. After such notification, the entity must
notify the comptroller in writing only when the organization no longer
qualifies for exemption.
(B) If a foreign entity has not obtained a registration
or otherwise qualified to do business in the state, if applicable,
and if the entity has not notified the comptroller that it is doing
business in Texas, the entity must notify the comptroller in writing
only when the entity no longer qualifies for exemption under Tax Code,
§171.084. There is no need to apply for exemption as long as
the entity qualifies for the exemption.
(2) Solicitation periods. If the solicitation of orders
is conducted during more than five periods during the business period
upon which tax is based as set out in Tax Code, §171.1532 (Business
on Which Tax on Net Taxable Margin is Based), the entity does not
qualify for exemption.
(A) For example, an entity with its fiscal year ending
December 31, 2008, that filed a 2008 annual report, will not have
to file and pay a 2009 annual report if it did not solicit orders
for more than five periods during 2008.
(B) For example, assume a foreign entity participated
in its first trade show in Texas on April 1, 2008. It also participated
in trade shows in 2009 on January 1, March 1, May 1, June 1, August
1, and October 1. The entity's fiscal year ends are December 31, 2008,
and 2009. The entity would be exempt for its initial report and payment
(covering the privilege periods from April 1, 2008 - December 31,
2009) because it only solicited for one period from April 1, 2008
- December 31, 2008 (i.e., the business upon which the initial report
is based). The entity would be required to file a 2010 annual report
and pay tax, however, because it solicited for six periods from January
1, 2009 - December 31, 2009 (i.e., the period upon which the 2010
annual report is based).
(3) One hundred twenty hours. A solicitation period
may not exceed 120 consecutive hours. If the solicitation of orders
is conducted during a single period of more than 120 consecutive hours,
the entity does not qualify for exemption. For example, an entity
that meets the other requirements of Tax Code, §171.084, will
meet the 120 hours requirement if the solicitation occurs Monday -
Friday, but will not meet the 120 hours requirement if the solicitation
occurs Monday - Saturday. If none of the solicitation limits prescribed
in this subsection are exceeded, an entity may qualify for the exemption
even if it leases space at a wholesale center for the entire period
upon which the tax is based.
(k) Credit association exemption. A cooperative credit
association incorporated under Agriculture Code, Chapter 55 (Cooperative
Credit Associations), an entity organized under 12 U.S.C. §2071,
or an agricultural credit association regulated by the Farm Credit
Administration is exempt from franchise tax.
(l) Bingo unit exemption. For reports originally due
on or after October 1, 2009, a bingo unit formed under Occupations
Code, Chapter 2001, Subchapter I-1 (Unit Accounting), is exempt from
franchise tax. "Unit" means two or more licensed authorized organizations
that conduct bingo at the same location joining together to share
revenues, authorized expenses, and inventory related to bingo operation.
(m) TexAmericas Center nonprofit corporation exemption.
Effective June 16, 2015, a nonprofit entity created by the TexAmericas
Center under Special District Local Laws Code, §3503.111 (Nonprofit
Corporations), is exempt from franchise tax.
Cont'd... |
