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Texas Tax Exempt Organizations: Purchases and Sales

TEXAS: Navigating through the tax-exempt organization landscape can be confusing and daunting. Over the next few blogs we will look at different aspects of the tax-exempt scenario. This segment will focus on purchases and sales by tax exempt organizations.

Tax-Exempt Purchases:
Organizations that have been granted tax exemption will receive a letter of sales tax exemption from the Comptroller of Public Accounts. This exemption allows the organization to purchase, rent or lease taxable items necessary to the organization’s exempt functions without paying sales and use tax. This exemption must be claimed at the time of purchase by providing a complete exemption certificate. For government agencies, a purchase voucher is valid proof of exemption.

Retailers:
Retailers must collect sales tax unless a government purchase voucher or a valid exemption certificate is provided. By law, retailers are not required to accept an exemption claim but may do so by accepting a property completed exemption certificate in lieu of sales tax. If the retailer chooses not to accept an exemption certificate the seller can provide, upon request, a completed Assignment of Right to Refund. This will allow the purchaser to request a refund for sales tax paid directly from the Comptroller.

Individuals:
Employees or authorized agents of an exempt organization may make tax free purchases for the organization by supplying the vendor with a completed exemption certificate. Items purchased cannot be used for personal use by an individual or other private party. Items purchased by an employee or agent are not eligible for exemption if they are for personal use, even if the exempt organization reimburses for those expenses when incurred during official business. Examples of such expenses are meals, clothing and laundry, and toiletries. Exemption also does not cover transportation and travel expenses such as parking, vehicle rental or the use of a motor vehicle.

An individual may provide an exemption certificate in lieu of sales tax when purchasing an item that will be donated to an exempt organization. However, If the item is used prior to being donated the exemption is lost and sales tax must be paid.

The application for exemption can be found online here: Exemption Forms Index

More information can be found at Guidelines to Texas Tax Exemptions (96-1045)

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