With tax season heating up, many Texas businesses may be wondering if they're tax-exempt.
For the most part, all businesses are subject to franchise tax unless an exemption has been recognized by the state or IRS. No business is automatically exempt and must apply for exemption with the Texas Comptroller of Public Accounts.
So what businesses are eligible for tax-exempt status?
Non-profit organizations. One of the most surefire ways for non-profit organizations to obtain tax-exempt status is to apply under Section 501(c)(3) of the IRS's Internal Revenue Code. If the organization qualifies, then it'll be able to be exempt from federal, state, and local taxes. If your non-profit organization is exempt from taxes by the IRS, then it'll be granted the tax exemption from Texas' sales tax or sales and franchise tax, according to the Texas Comptroller.
Some religious organizations. Contrary to popular belief, churches and religious organizations aren't automatically exempt from sales, franchise, and hotel occupancy taxes in Texas. If your business is a religious organization, then it must have an established congregation that regularly meets at a specific location to hold, conduct and sponsor religious worship services according to the "rites of its sect" in order to qualify for tax-exempt status, the Texas Comptroller explains.
Homeowner's associations. Although some people may feel like their homeowner's associations boss them around like a for-profit business, they're generally non-profit governing bodies which make and enforce rules in housing developments. The Texas Comptroller requires that the homeowner's association be a corporation that is organized and operated primarily to maintain the property of the real estate development and grant individual owners of property 51 percent of votes in decisions. If only one person or a family control the votes, then the homeowner's association won't qualify for the tax-exemption status.
Although the Texas Comptroller provides a general idea of what businesses and organizations are exempt from certain taxes, it's a good idea to hire an experienced tax attorney to make sure you're not short changing Uncle Sam.