Texas allows many businesses and organizations in the state to enjoy tax exempt status. These entities include churches, schools, charities and other groups that serve the public. Your business is required to recognize the tax exempt status of these organizations and accept their applicable tax forms. As you operate your business in this state, you should recognize and welcome these five common forms used for tax exemption.
The AP-204 form will arguably be one of the most common ones presented to your business. It is a broad form that covers most of the organizations that are allowed tax exempt protection in the state. Some of the groups that use this form include:
- The federal and state government
- Cemetery and burial associations
- Nursing home corporations
- Farm mutual insurance groups
- Cooperative housing organizations
- Federal credit unions
- Youth athletic organizations
- Volunteer fire departments
- Recycling groups
- Hospital laundry cooperatives
- Student scholarship groups
- Water conservation or rights boards
The form AP-204 may be one that your business encounters most frequently because it is used by these and many other organizations. You are required to accept it and allow these groups the tax exemption to which they are entitled.
The form AP-205 gives tax exempt status to charities. A charity can fill out the form and apply this status. Once the exemption is granted, you must by law avoid charging it tax on its purchases at your business.
It should be noted, however, that the law requires a charity to be non-profit and that it provide services like food, clothing, medicine and shelter to the poor, relieve disease, poverty, suffering, or pain or provide psychological counseling for the poor and indigent. Charities that do not provide these services may not be eligible to use form AP-205.
Non-profit homeowners' associations are given tax exempt status by using the form AP-206. The association's purpose must be to buy, construction, maintain or manage housing that is used for residential purposes.
The owners of the homes or lots must have at least 51 percent voting input for the association. Associations headed by single persons, banks or corporate entities are not eligible to use this form.
The form AP-207 is used to give schools and educational groups tax exempt status at Texas businesses. As with other tax exempt forms, groups that use AP-207 must be non-profit and provide educational services or instruction for students. Public schools, universities and vocational colleges are among those groups that use this form most often.
However, schools and organizations that are privately owned and governed by entities like churches or religious organizations can also apply for tax exempt status with this form. They must provide proof that they provide a copy of their bylaws or constitution to show that they are non-profit, however.
Religious groups, churches, temples and other entities that provide worship services or instruction are also allowed tax exempt status with form AP-209. Churches must hold regular services, meet at established locations, have a congregation and worship according to their sect or rites.
Religious groups like convents, monasteries, church youth groups, alter societies and others likewise must provide instruction or services according to their associated church or temple's sect. Religious entities cannot be for-profit to enjoy exemption from paying taxes at your Houston business.
The state of Texas allows many types of organizations and corporations to avoid paying taxes when they make purchases at businesses such as yours. You would do well to know the common tax exempt forms you may encounter and what kinds of groups are allowed to use them when doing business with your company.