Can an unincorporated local chapter of a national 501(c)(3) organization use the parent organization's Texas sales tax exemption?

Subject

Church — Exempt Status — Branches Vs. Independent Churches

Plain-English summary

A local chapter (identified in the letter as "CITY X Area Chapter of Americans United for Separation of Church and State") asked the Comptroller whether it qualified for exemption from Texas limited sales, excise, and use tax.

The Comptroller ruled that the chapter does meet the requirements for exemption, because it is an unincorporated branch of Americans United for Separation of Church and State, Inc. -- a 501(c)(3) organization that has already qualified for exemption from Texas sales tax. As an unincorporated branch, the chapter rides on the parent organization's exemption rather than needing to qualify separately.

To actually make tax-exempt purchases, the chapter uses an exemption certificate issued instead of paying state and local sales tax on taxable items or services that relate to the exempt organization's purpose (and that are not for the personal benefit of a private party or individual). The certificate itself must be issued in the name of the parent organization, Americans United for Separation of Church and State, Inc. To show the purchase is actually being made by the chapter, the chapter references its own name in the "Purchaser claims this exemption for the following reason" section of the certificate and states that it is an unincorporated branch of the parent organization. The exemption certificate does not require a number to be valid and may be locally reproduced in any quantity.

The letter also notes that if the chapter makes any sales of taxable items or services itself, it should contact the Comptroller's Tax Assistance Section to determine whether it needs a sales tax permit.

What this means for you

Local chapters, branches, or affiliates of exempt national/parent organizations

If your local group is an unincorporated branch of a parent organization that already holds a Texas sales-tax exemption (e.g., a 501(c)(3)), you may be able to make exempt purchases without separately qualifying for exemption. The exemption certificate is issued in the parent organization's name, and your chapter's name and its status as an unincorporated branch are noted on the certificate to document that the chapter is the one making the purchase.

Nonprofit and church administrators

Being a "branch" (as opposed to an independently incorporated, separately organized entity) matters here -- the exemption flowed from the parent's existing 501(c)(3) qualification. If your local church, chapter, or affiliate makes sales of taxable items or services, this letter flags that you should check with the Comptroller's Tax Assistance Section about whether a sales tax permit is required.

Accountants and tax professionals advising exempt organizations

When a client operates as an unincorporated local branch of an exempt parent, confirm the exemption certificate is issued in the parent's name, with the branch identified in the reason-for-exemption section as an unincorporated branch. No exemption certificate number is required, and certificates may be locally reproduced in any quantity.

Common questions

Q: Does an unincorporated local chapter need its own separate tax-exempt determination?
A: Not according to this letter -- the chapter qualified for exemption because it is an unincorporated branch of a parent organization that already qualified as a 501(c)(3) exempt from Texas sales tax.

Q: Whose name goes on the exemption certificate -- the chapter's or the parent's?
A: The parent organization's name (here, Americans United for Separation of Church and State, Inc.). The chapter's name is referenced separately, in the section explaining the reason for the exemption, along with a note that it is an unincorporated branch.

Q: Does the exemption certificate need a number?
A: No. The letter states the exemption certificate does not require a number to be valid and may be locally reproduced in any quantity.

Q: What if the chapter makes its own sales of taxable items or services?
A: The letter instructs the organization to contact the Comptroller's Tax Assistance Section to determine if a sales tax permit is needed.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9609748L

Original ruling text

September 27, 1996

Dear ***:

CITY X Area Chapter of Americans United for Separation
of Church and State meets the requirements for exemption from the Texas limited
sales, excise and use tax because it is an unincorporated branch of Americans
United for Separation of Church and State, Inc. which is a 501(c)(3)
organization that has qualified for exemption from the sales tax.

An exemption certificate may be issued instead of
paying the state and local sales tax when purchasing taxable items or services
that relate to the purpose of the exempted organization and that are not used
for the personal benefit of a private party or individual. However, the
exemption certificate must be issued in the name of the parent organization,
Americans United for Separation of Church and State, Inc. To show that the
purchase is being made by your chapter, reference the name of your chapter
under the section titled "Purchaser claims this exemption for the following
reason", and indicate that it is an unincorporated branch of the parent
organization.

The exemption certificate does not require a number to
be valid and it may be locally reproduced in any quantity.

If your organization makes any sales of taxable items
or services, please contact our Tax Assistance Section at 1-800-252-5555 to
determine if a sales tax permit is needed. The regular number is 512/463-4600.

If you have any questions, please call me toll free at
1-800-531-5441, extension 3-4142. The regular number is 512/463-4142.

Sincerely,

Wanda K. Carter
Exempt Organizations Section