What information did a Texas utility need on exemption certificates from religious, 501(c), nonprofit, or other exempt-entity customers?

Plain-English summary

The Texas Comptroller said a utility could accept exemption certificates that identified the purchaser's exemption type, such as 501(c) or religious status, when the organization actually qualified under Rule 3.322.

A certificate stating only "nonprofit" or "exempt" should not be accepted without verifying the entity's status. The utility was responsible for knowing which types of organizations could qualify.

The utility was relieved of tax liability only when the certificate was properly completed, covered a qualifying organization or entity, and was accepted in good faith. The letter also described a planned Comptroller computer list and telephone inquiry process beginning around February 1987.

What this means for you

Generic labels were not enough. The seller needed a specific exemption basis, a complete certificate, a qualifying purchaser, and good-faith acceptance.

Common questions

Could a certificate naming 501(c) or religious status be accepted? Yes, if the entity qualified.

Was a certificate saying only 'nonprofit' enough? No, not without verification.

When was the utility relieved of liability? When the certificate was complete, the organization qualified, and acceptance was in good faith.

Citations and references

• Comptroller Rule 3.322 — qualifying exempt 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/8612L0784F07

Original ruling text

December 15, 1986

Dear ***:

This is to follow up our telephone conversation regarding sales tax
exemption certificates received from customers claiming tax exemption as
exempt entities.

Exemption certificates that identify the type of exempt status of the
purchaser (i.e., 501(c), religious, etc.) can be accepted. Please
refer to Rule 3.322 which outlines the types of organizations that
qualify for exemption. Exemption certificates that only state
"nonprofit" or "exempt" should not be accepted without verifying the
entities' exempt status.

As in any claim for exemption, you are responsible for knowing the types
of organizations or entities that can qualify for exempt status. The
utility company is relieved of liability for the tax as long as the exemption
certificate is properly Completed, is for an organization or entity that
qualifies for exemption and is accepted in good faith.

Beginning about the first of February, these exempt entities will be
listed on our computer. You will be able to call our toll-free number and
inquire about any questionable organization.

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write us at the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division