How did a veterans' post's Texas sales- and franchise-tax exemptions affect its purchases, resale inventory, permit, and taxable sales?

Plain-English summary

A veterans' post qualified for Texas franchise- and sales-tax exemption as a Section 501(c)(19) organization. Its franchise-tax exemption was effective July 5, 1989, and its sales-tax exemption letter was dated August 21, 1989.

The exemption cleared the franchise-tax account, so a franchise-tax report mailed shortly before approval was not due. For sales tax, the post could issue an exemption certificate for purchases that furthered its exempt purpose and did not benefit a private individual.

The exemption certificate could not be used for beer, soda, cigarettes, or candy bought for resale. Those items could instead be bought tax-free with a resale certificate under Rule 3.285.

Because the post had canceled its sales-tax permit in December 1988, it had to obtain a new permit if it was selling those taxable items to members or the public. It also had to collect the tax and remit it on a quarterly or annual sales-and-use-tax report.

Common questions

Was the mailed franchise-tax report due? No, after the exemption cleared the account.

Could the post use its exemption certificate for resale inventory? No.

How could resale inventory be bought tax-free? With a resale certificate.

Did exempt status eliminate collection duties on taxable sales? No.

Citations and references

• 34 Tex. Admin. Code Rule 3.322
• 34 Tex. Admin. Code Rule 3.285

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8909L0959G12

Original ruling text

October 9, 1989

Dear ***:

Your copies of a sales tax exemption certificate, franchise tax report, and the
photocopy FOR a letter granting your organization exemption from state franchise
tax and state sales tax have been forwarded to me for review and response.

The franchise tax report that you have received was sent a few days before the
exempt status was granted to your organization. As of this date, our records indicate
that the franchise tax report is not due. The franchise tax exempt status of your
organization has property cleared the account.

In regards to the sales tax exemption certificate you enclosed, I feel some
clarification is required. Your organization is exempt from the payment of sales
taxes on items purchased that further the exempt purpose of the organization. Please
see Rule 3.322, enclosed. Beer, sodas, cigarettes, and candy bars purchased for
sale by Post *** cannot be purchased tax-free under the exemption
certificate.

Organizations that qualify for exempt status based upon rule 3.322 must collect
and remit the sales taxes due on their sales of taxable items. Your organization
cancelled the sales tax permit it held in December, 1988. If your organization is
actually selling the above listed items to members of the organization or to the
public at meetings or other functions, your organization must obtain a new sales
tax permit, collect the taxes due on these sales, and remit the taxes collected to
this agency on a quarterly or yearly sales and use tax report. Taxable items to be
resold can be purchased tax-free under a resale certificate as explained in rule
3.285, enclosed with other sales tax information.

This opinion is based on the facts presented. If there are additional or different
facts, the opinion may change. You may write me at Tax Correspondence, Comptroller
of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence

August 21, 1989

Dear ***:

We have determined that *** Post 653, Taxpayer No. *****,
qualifies for exemption from state franchise tax and state sales tax. In the
event that we have reason to believe that your corporation no longer qualifies
for the exemptions, we will notify your registered agent that the exempt status
is under review. Your franchise tax exemption as a public interest organization
is effective July 5, 1989.

Your corporation qualifies for sales tax exemption effective the date of this
letter as a 501(c)(19) group organization. You may now issue an exemption
certificate in lieu of the sales tax on taxable items purchased if the items
relate to the purpose of the exempt organization and are not used for the personal
benefit of a private stockholder or individual. The certificate does not require a
number to be valid and may be reproduced in any quantity.

If your organization changes its name or address, you are required to
notify us.

Sincerely,

Harry F. Rogers
Exempt Organizations