How many tax-free fundraising sales can a fraternal organization's Texas chapter hold each year, and does it need a sales tax permit?

Plain-English summary

A nonprofit organization (name redacted) wrote to the Comptroller asking about its Texas sales tax obligations. Every branch of the organization held a federal 501(c)(10) exemption — the IRS category for domestic fraternal beneficiary societies operating under a lodge system (STAR's own subject index files this letter under examples like Masons, Elks, Knights of Columbus, and Eastern Star chapters, though the letter itself doesn't name the specific taxpayer). The organization had already been granted an exemption from paying Texas sales tax on its own purchases for its exempt purpose, and asked about selling items at fundraisers.

The Comptroller confirmed each chapter of a qualifying organization — whether exempt as religious, educational, or charitable, or exempt under IRS Section 501(c)(3), (4), (8), (10), or (19) — may hold up to two one-day tax-free sales or auctions per calendar year (a "day" defined as 24 consecutive hours). During those events, sales tax need not be collected on taxable items sold. The letter enclosed a copy of Comptroller Publication 96-122, "Texas State Tax Exemptions for Nonprofit Organizations," for the group's reference. If the organization sells taxable items only at its one or two annual fundraisers and nowhere else during the year, it does not need to hold a Texas sales tax permit at all; if it exceeds two sales/auctions per year or sells taxable items outside those events, it must obtain a permit.

What this means for you

Fraternal societies, lodges, and similar nonprofits

If your chapter is exempt under 501(c)(3), (4), (8), (10), or (19) (or as a religious/educational/charitable organization), you get two tax-free one-day fundraiser sales or auctions per calendar year — no sales tax collection needed on those days. A "day" means 24 consecutive hours, so plan multi-day events accordingly.

Small nonprofit chapters deciding whether they need a sales tax permit

If fundraiser sales are limited to your one or two annual tax-free events, skip the permit. The moment you add a third sale/auction in a year, or sell taxable items at any other time, you need a Texas sales tax permit and must collect tax on those additional sales.

Accountants advising nonprofit and fraternal clients

Publication 96-122 is the Comptroller's own reference guide for this area and is worth pulling directly when advising a 501(c) client on the one-day-sale rule and permit thresholds.

Common questions

Q: How many tax-free one-day sales can a qualifying nonprofit chapter hold per year?
A: Two per calendar year, each limited to 24 consecutive hours, with no sales tax collected on taxable items sold at those events.

Q: Which organizations qualify?
A: Those exempt as religious, educational, or charitable organizations, or exempt under IRS Code Section 501(c)(3), (4), (8), (10), or (19) — the (c)(10) category covers fraternal beneficiary societies like Masons, Elks, Knights of Columbus, and Eastern Star chapters.

Q: Does the organization need a Texas sales tax permit?
A: Not if it sells taxable items only during its one or two annual tax-free sales/auctions. A permit is required if it holds more than two such events a year or sells taxable items at other times.

Q: Can any 501(c)(10) chapter rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own chapter's facts with a tax professional.

Citations and references

Federal law and Comptroller guidance:

• 26 U.S.C. § 501(c)(10) (and (c)(3), (4), (8), (19)) (federal tax-exempt categories)
• Comptroller Publication 96-122, "Texas State Tax Exemptions for Nonprofit Organizations"

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200009739L

Original ruling text

September 28, 2000

Dear **:

Thank you for your recent letter regarding your organization and Texas sales
tax.

All branches of the ORGANIZATION hold a 501(c)(10) exemption from the Internal
Revenue Service. The organization has been granted exemption from paying Texas
sales tax when purchasing items for the exempt purpose of the organization.

Each chapter of an organization qualifying for sales tax exemption under the
religious, educational, or charitable category and organizations exempted from
sales tax based on their IRS exemption under Section 501 (c)(3), (4), (8),
(10), or (19) of the Internal Revenue Code may hold two one-day, tax-free sales
or auctions each calendar year. One day is 24 consecutive hours. For each
one-day sale or auction only, sales tax need not be collected on the sale of
taxable items.

I enclosed a copy of Publication 96-122 "Texas State Tax Exemptions for
Nonprofit Organizations" for your review.

If your organization is not selling taxable items other than during your yearly
fundraiser, then it is not required to hold a Texas sales tax permit. If,
however, your organization holds more than two sales or auctions per year, or
sells taxable items at other times during the year, then it must hold a Texas
sales tax permit.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

You may call me toll free 1-800-531-5441, extension 5-9787, if you have any
questions or need more information. The direct line is 512/305-9787. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Philip Knisely
Tax Policy Division