TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER O. STATE AND LOCAL SALES AND USE TAXES

34 TAC §3.322

The Comptroller of Public Accounts proposes amendments to §3.322, concerning exempt organizations. The comptroller amends the section to reflect the changes in Tax Code, §151.3102 (Sale by Nonprofit Organization at County Fair) made by House Bill 2684, 86th Legislature, 2019, effective September 1, 2019, and House Bill 3799, 87th Legislature, 2021, effective October 1, 2021. The comptroller also amends the section to memorialize longstanding agency policy on qualification as a religious organization.

The comptroller amends subsection (b)(3) to memorialize policy as provided in Publication 96-122, Nonprofit and Exempt Organizations - Purchases and Sales, that a religious organization must have a designated physical location from which worship services are held.

The comptroller amends subsection (h)(3) to reflect the current title of §3.286 as Seller's and Purchaser's Responsibilities.

The comptroller adds new subsection (h)(4) to exempt the sale of a taxable item if the seller or retailer is a county fair association or another nonprofit organization that is exempt from federal income taxation under Section 501(a), Internal Revenue Code of 1986, by being listed as an exempt organization in Section 501(c)(3) of that code, the sale takes place at a county fair operated by a county fair association on property owned by the county, and the purchaser is a person attending or participating in the fair.

The comptroller adds new subsection (h)(5)(A) to define a "county fair association" as an organization that is exempt from federal income taxation under Section 501(a), Internal Revenue Code of 1986, by being listed as an exempt organization in Section 501(c)(3) of that code and that organizes a county fair that is primarily for the exhibition of local horticultural or agricultural products or livestock. A county fair association does not include an association that holds a license issued after January 1, 2001, under Subtitle A-1, Title 13, Occupations Code (Texas Racing Act); or an association that organizes events other than a county fair, including an exhibition of arts and crafts or state fair.

The comptroller adds new subsection (h)(5)(B) to state that livestock includes poultry, cattle, sheep, swine, horses, mules, donkeys, and goats. Livestock does not include domesticated animals such as dogs, cats, guinea pigs, hamsters, or other similar animals.

Subsequent paragraphs are renumbered accordingly.

The comptroller amends subsection (i) to reflect the current title of §3.316 as Occasional Sales; Transfers Without Change in Ownership; Sales by Senior Citizens' Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters.

Brad Reynolds, Chief Revenue Estimator, has determined that during the first five years that the proposed amendment is in effect, the amendment: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rules' applicability; and will not positively or adversely affect this state's economy. This proposal amends a current rule.

Mr. Reynolds also has determined that for each year of the first five years the rule is in effect, proposed amendment would benefit the public by conforming the rule to current statutes and agency policy. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. The proposed amendment would have no significant fiscal impact on the state government, units of local government, or individuals. There would be no anticipated significant economic costs to the public.

You may submit comments on the proposal to Jenny Burleson, Director, Tax Policy Division, P.O. Box 13528 Austin, Texas 78711 or to the email address: tp.rule.comments@cpa.texas.gov. The comptroller must receive your comments no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendments are proposed under Tax Code, §111.002 (Comptroller's Rules, Compliance, Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

The amendments implement Tax Code, §151.3102 (Sale by Nonprofit Organization at County Fair).

§3.322.Exempt Organizations.

(a) General policy. This section is administered using the following guiding principles.

(1) Because exemptions are not favored under the laws of the State of Texas, the provisions of this section shall be strictly interpreted.

(2) An organization must show by clear and convincing evidence that it meets the requirements of this section and the relevant statutes. Any unresolved question about the qualifications of an organization will result in denial of exempt status.

(b) Entities that must prove exempt status. Entities or organizations that may qualify for exempt status include:

(1) a nonprofit charitable or eleemosynary organization that devotes all or substantially all of its activities to the alleviation of poverty, disease, pain, and suffering by providing food, clothing, medicine, medical treatment, shelter, or psychological counseling directly to indigent or similarly deserving members of society with its funds derived primarily from sources other than fees or charges for its services. If the organization engages in any substantial activity other than the activities described in this section, it cannot qualify for exemption under this provision because it is not organized for purely public charity. However, if the organization is engaged in activities, other than those described in this section, and the additional activities are incidental to and in support of the activities conducted by the organization that are described in this section, the organization may be considered for this exemption. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the definition of a charitable organization, even if they are nonprofit organizations that perform services that are often charitable in nature, are as follows: fraternal organizations, lodges, fraternities, sororities, service clubs, veterans groups, mutual benefit or social groups, professional groups, trade or business groups, trade associations, medical associations, chambers of commerce, and similar organizations. Although these organizations do not qualify for exemption as charitable organizations, they may qualify for the exemption under Tax Code, §151.310(a)(2), if they obtain an exemption from the Internal Revenue Service (IRS) under Internal Revenue Code (IRC), §501(c). Chambers of Commerce may qualify for exemption under paragraph (6) of this subsection;

(2) a nonprofit educational organization or governmental entity whose activities are devoted solely to systematic instruction, particularly in the commonly accepted arts, sciences, and vocations, and has a regularly scheduled curriculum that uses the commonly accepted methods of teaching, a faculty of qualified instructors, and an enrolled student body or students in attendance at a place where the educational activities are regularly conducted. An organization that has activities that solely consist of presentation of discussion groups, forums, panels, lectures, or other similar programs, may qualify for the exemption under this provision, if the presentations provide instruction in the commonly accepted arts, sciences, and vocations. An organization cannot qualify for exemption under this provision if the systematic instruction or educational classes are incidental to some other facet of the organization's activities. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the requirements for exemption under this definition are professional associations, business leagues, information resource groups, research organizations, support groups, home schools, and organizations that merely disseminate information by distributing printed publications. Although these organizations do not qualify for exemption as educational organizations, they may qualify for the exemption under Tax Code, §151.310(a)(2), if they obtain an exemption from the IRS under IRC, §501(c);

(3) a nonprofit religious organization that is an organized group of people who regularly meet at a designated physical location for the primary purpose of holding, conducting, and sponsoring religious worship services according to the rites of their sect. The organization must be able to provide evidence of an established congregation that shows regular attendance of these services by an organized group of people. An organization that supports or encourages religion as an incidental part of its overall purpose, or one whose general purpose is to further religious work or instill its membership with a religious understanding, cannot qualify for exemption under this provision. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization. Some examples of organizations that do not meet the requirements for exemption under this definition are conventions or associations of churches, evangelistic associations, churches with membership consisting of family members only, missionary organizations, and groups that organize for the purpose of holding prayer meetings, Bible study, or revivals. Although these organizations do not qualify for exemption as religious organizations, they may qualify for the exemption under Tax Code, §151.310(a)(2), if they obtain an exemption from the IRS under IRC, §501(c);

(4) a youth athletic organization that is a nonprofit corporation or association that exclusively provides athletic competition among persons under 19 years of age;

(5) a nonprofit organization that applies for and obtains a determination letter or a group exemption ruling letter from the IRS that states that the organization qualifies for exemption from federal income tax under IRC, §501(c)(3), (4), (8), (10), or (19);

(6) a nonprofit chamber of commerce that represents at least one Texas city, county, or geographic locality. For the purpose of this section, a chamber of commerce is a perpetual organization devoted exclusively to promoting the general economic interest of all commercial enterprises in the city, county, or areas it represents. The term does not include chamber-like organizations such as trade associations or business leagues that serve a single line or closely related lines of business within a single industry;

(7) a nonprofit convention and tourist promotional agency organized or sponsored by at least one Texas city or county;

(8) an electric cooperative formed under the Electric Cooperative Corporation Act (Utilities Code, Chapter 161) and nonprofit electric cooperatives located outside the state;

(9) a telephone cooperative formed under the Telephone Cooperative Act (Utilities Code, Chapter 162) and nonprofit telephone cooperatives located outside the state;

(10) a local organizing committee, as defined in Texas Civil Statutes, Article 5190.14, §1(7), that is exempt from federal income tax under IRC, §501(c). The local organizing committee must be authorized by an endorsing municipality, an endorsing county, or more than one endorsing municipality or county acting collectively to pursue an application and submit a bid on the municipality's or county's behalf to a site selection organization for selection as the host site of one or more games or events, as defined in Texas Civil Statutes, Article 5190.14, §§5A, 5B, or 5C;

(11) any company, department, or association organized for the purpose of answering fire alarms and extinguishing fires or for the purpose of answering fire alarms, extinguishing fires, and providing emergency medical services, the members of which receive nominal or no compensation for their services; and

(12) nonprofit corporations formed under Local Government Code, Chapter 501 (Development Corporation Act of 1979) or Health and Safety Code, Chapter 221 (Health Facilities Development Act of 1981) when they purchase items for their exclusive use and benefit. The exemption does not apply to items purchased by the corporation to be lent, sold, leased, or rented.

(c) Entities that are always exempt. Certain entities and organizations are exempt under the law and are not required to request and prove exempt status, except to send information as requested by the comptroller to verify its exempt status under this subsection.

(1) The United States, its unincorporated agencies and instrumentalities. The United States includes all parts of the executive, legislative, and judicial branches and all independent boards, commissions, and agencies of the United States government. Instrumentalities and agencies of the United States include:

(A) various military entities under the supervision of a base commander;

(B) organizations that contract with the United States and whose contracts explicitly and unequivocally state that they are agents of the United States;

(C) organizations wholly owned by the United States or wholly owned by an organization that is itself wholly owned by the United States;

(D) organizations specifically named as agents of the United States or exempted as instrumentalities of the United States by federal statutes; and

(E) organizations having substantially all of the following characteristics:

(i) they are funded by the United States;

(ii) they carry out a specific program of the United States;

(iii) they are managed or controlled by officers of the United States;

(iv) their officers are appointed by the United States;

(v) they perform commitments of the United States under an international treaty; and

(vi) they are not organized for private profit;

(2) any incorporated agency or instrumentality of the United States wholly owned by the United States or by a corporation wholly owned by the United States. "Wholly owned" means total or 100% ownership;

(3) federal credit unions organized under 12 United States Code, §1768;

(4) the State of Texas, its unincorporated agencies and instrumentalities; and

(5) any county, city, special district or other political subdivision of the State of Texas, and any college or university created or authorized by the State of Texas.

(d) Qualification requirements. To qualify for exempt status under subsection (b) of this section, an organization must satisfy all of the following requirements.

(1) An organization must be organized or formed solely to conduct one or more exempt activities. The comptroller will consider all documents necessary to prove the purpose for which an organization is formed.

(2) An organization must devote its operations exclusively to one or more exempt activities.

(3) An organization must dedicate its assets in perpetuity to one or more exempt activities.

(4) No profit or gain may pass directly or indirectly to any private shareholder or individual. All salaries or other benefits furnished officers and employees must be commensurate with the services actually rendered.

(e) How to obtain exempt status.

(1) Application. To apply for and obtain notification of exemption from the comptroller, an organization must complete and submit to the comptroller the appropriate application or its equivalent. Applicants should refer to the Guidelines to Texas Tax Exemptions (publication 96-1045) for assistance in completing the proper application for any exemption sought.

(2) Documentation required. In addition to a properly completed application, an organization must submit with the application all documents requested by the application and comptroller publication 96-1045, Guidelines to Texas Tax Exemptions, all governing documents as indicated by subparagraph (A) of this paragraph, and all IRS documents indicated by subparagraph (B) of this paragraph.

(A) Governing documents. A copy of each of the organization's governing documents must be submitted with the application as indicated in clauses (i) - (iii) of this subparagraph.

(i) An unincorporated organization requesting an exemption must include copies of its formation documents, such as bylaws, constitution, articles of association, certificate of formation, or applicable trust agreement, and any related amendments. If the exemption being sought requires that the organization be a nonprofit, the governing documents must state that the organization is a nonprofit.

(ii) A non-Texas corporation requesting an exemption must include file-stamped copies of its formation documents and certificate of existence from the home state of incorporation, and any related amendments.

(iii) A non-Texas limited liability company requesting an exemption must include file-stamped copies of its formation documents and certificate of existence from the home state of formation, and any related amendments.

(iv) Exception. An organization applying for exemption based on its federal exempt status under IRC, §501(c)(3), (4), (8), (10), or (19), is not required to submit file-stamped copies of its governing documents and certificate of existence unless it is a corporation or limited liability company chartered outside the state of Texas.

(B) IRS documents. If an organization is applying for exemption based on its federal exempt status under IRC, §501(c)(3), (4), (8), (10), or (19), the organization must provide copies of all pages of its IRS determination letter or group exemption ruling letter and include any caveat or addendum that applies. If the original determination letter or group exemption ruling letter is more than four years old, the organization must also include a copy of a recent letter from the IRS to confirm the exemption is still valid. A nonprofit organization that claims exemption under a parent's exemption must provide a copy of the parent organization's IRS group exemption ruling letter and a letter from the parent organization that states the applicant nonprofit organization is a subordinate covered by the parent organization's group exemption.

(3) The comptroller may require an organization to furnish additional information to further clarify the organization's overall purpose and activities to establish the claimed exemption. For example, the comptroller may request a written statement that details the nature of the activities conducted, or to be conducted, financial information, and documentation that shows all services the organization performs.

(4) After a review of the material, the comptroller will inform an organization in writing if it qualifies for exemption.

(5) The comptroller or an authorized representative of the comptroller may audit the records of an organization at any time during regular business hours to verify the validity of the organization's exempt status.

(f) Revocations, withdrawals, or loss of exemptions.

(1) Except as provided in paragraph (2) of this subsection, if at any time the comptroller has reason to believe that an exempt organization no longer qualifies for exemption, a comptroller's representative will notify the organization that its exempt status is under review. A comptroller's representative may request additional information that is necessary to ascertain the continued validity of the organization's exempt status. An organization must immediately notify the comptroller in writing of a revocation, withdrawal, or loss of exemption when the organization no longer qualifies for exemption. If the comptroller determines that an organization is no longer entitled to its exemption, then the comptroller will notify the organization. The date of the notification letter is the effective date of the revocation. All subsequent purchases by the organization are subject to tax.

(2) For nonprofit organizations that are granted an exemption under Tax Code, §151.310(a)(2), the revocation, withdrawal, or loss of the federal income tax exemption automatically terminates the sales tax exemption, effective on the date on which the IRS serves formal written notice of the revocation on the nonprofit organization or the date on which the IRS notifies the comptroller, whichever is earlier. All subsequent purchases by the organization are subject to tax.

(A) The effective date of a revocation for a nonprofit organization that was granted an exemption as a recognized subordinate is the date on which the organization ceased to be recognized as a subordinate under the federal group exemption. All subsequent purchases by the organization are subject to tax.

(B) The organization must notify the comptroller in writing of the revocation, withdrawal, or loss of exemption immediately upon receiving notice from the IRS of such revocation, withdrawal, or loss.

(C) Under a federal/state exchange agreement, the IRS may notify the comptroller when an organization no longer qualifies for federal exemption.

(3) An organization that loses its exempt status must immediately notify its suppliers that its purchases are subject to tax. Failure to so notify a supplier is a violation of the sales tax law.

(4) After revocation, the organization may re-apply for exempt status under other provisions of this section.

(g) Purchases by an exempt organization; refund claims; and credits. See §3.287 of this title (relating to Exemption Certificates).

(1) The purchase, lease, or rental of a taxable item that relates to the purpose of an exempt organization listed in subsection (b)(1), (2), (3), (5), (10), (11) or (12) of this section is exempt from tax when the organization or an authorized agent of the organization pays for the item and provides the vendor with an exemption certificate in the form prescribed by the comptroller.

(2) The purchase, lease, or rental of a taxable item to an exempt organization listed in subsections (c) and (b)(4), (6), (7), (8), or (9) of this section is exempt from tax when the organization or an authorized agent pays for the taxable item and provides the vendor with an exemption certificate in the form prescribed by the comptroller.

(3) A purchase voucher issued by any one of the entities identified in subsection (c) of this section is sufficient proof of the entity's exempt status.

(4) An exemption certificate must be given to a vendor when an authorized agent makes a cash purchase of merchandise for an exempt organization.

(5) An employee of an exempt organization cannot claim an exemption from tax when the employee purchases taxable items of a personal nature even though the employee receives an allowance or reimbursement from the organization.

(6) A person who travels on official business for an exempt organization must pay sales tax on taxable purchases whether reimbursed on a per diem basis or reimbursed for actual expenses incurred.

(7) Bingo equipment as defined by Occupations Code, §2001.002, including machinery or devices used to select or hold letters or numbers, electronic or mechanical cardminding devices, pull-tab dispensers, bingo cards, balls, and other devices commonly used in the direct operation of a bingo game, are exempt from sales and use taxes when purchased, leased, or rented by an organization exempt under IRC, §501(c)(3), (4), (8), (10), or (19), and exclusively used to conduct bingo games authorized under Occupations Code, Chapter 2001. Commonly available component parts of bingo equipment such as batteries, light bulbs, and fuses do not qualify for this exemption.

(8) Refund claims and credits by organizations exempted under Tax Code, §151.310.

(A) Qualifying organizations. The following organizations are covered by the provisions of Tax Code, §151.310 and are subject to the provisions of this paragraph:

(i) organizations created for religious, educational, or charitable purposes;

(ii) organizations qualifying for an exemption from federal income taxes under IRC, §501(c)(3), (4), (8), (10), or (19);

(iii) nonprofit organizations engaged exclusively in providing athletic competition among persons under 19 years old;

(iv) volunteer fire departments; and

(v) chambers of commerce or convention and tourist promotional agencies representing at least one Texas city or county.

(B) Exemption effective dates.

(i) Organizations identified in subparagraph (A) of this paragraph are not considered exempted from sales and use taxes before the earlier of:

(I) the date the organization applied for exemption with the comptroller as evidenced by the postmark date on the organization's qualifying application for exemption as required under subsection (e) of this section; or

(II) the date of assessment of the organization's tax liability by the comptroller as a result of an audit.

(ii) With the exception of entities that qualify for exemption under subsection (c) of this section, organizations' exemption effective dates can be verified by using the comptroller's Texas Tax-Exempt Entity Search located on the agency's Web site.

(C) Refund claims by organizations with exemption effective dates prior to September 1, 2009. Organizations identified in subparagraph (A) of this paragraph with an exemption effective date prior to September 1, 2009 may request a refund or credit for sales and use taxes paid in error, retroactive to the effective date of the organization's exemption or the four-year statute of limitations, whichever date is more recent.

(D) Refund claims by organizations with exemption effective dates on or after September 1, 2009. Organizations identified in subparagraph (A) of this paragraph with an exemption effective date on or after September 1, 2009 are not eligible to request a refund or credit for sales or use tax paid between September 1, 2009 and the exemption effective date. If the comptroller has determined the organization with an exemption effective date on or after September 1, 2009, has met the requirements for exemption from the sales tax under Tax Code, §151.310 for a period prior to September 1, 2009, the organization may request a refund or credit for sales and use taxes paid in error on purchases made between the earliest date the comptroller determined the organization met the requirements for the exemption or the four-year statute of limitations, whichever is more recent, and August 31, 2009.

(E) See §3.325 of this title (relating to Refunds and Payments Under Protest) for more information about how to claim a refund and §3.339 of this title (relating to Statute of Limitations).

(h) Sales by an exempt organization.

(1) An exempt organization that sells taxable items must obtain a sales tax permit and is responsible for collection and remittance of tax on all sales of taxable items that the organization makes, unless otherwise provided by this subsection or unless such sales are otherwise exempt from the tax. See §3.293 of this title (relating to Food; Food Products; Meals; Food Service), §3.299 of this title (relating to Newspapers, Magazines, Publishers, Exempt Writings), and §3.298 of this title (relating to Amusement Services).

(2) A religious, educational, charitable, or eleemosynary organization, or an organization exempt under IRC, §501(c)(3), (4), (8), (10), or (19), and each of its bona fide chapters, may have two one-day tax-free sales or auctions each calendar year. During a tax-free sale or auction lasting only one day, the organization is not required to collect sales tax on the sales price of taxable items sold for $5,000 or less. Additionally, a taxable item may be sold tax-free during a one-day tax-free sale or auction regardless of price if the item is manufactured by the organization or is donated to the organization and is not sold to the donor.

(A) One day is a consecutive 24-hour period. If a designated tax-free sale or auction exceeds a consecutive 24-hour period, the organization or chapter may not hold another tax-free sale or auction during that calendar year. An organization or chapter may hold the two tax-free sales or auctions consecutively, but the two tax-free sales or auctions by that organization or chapter cannot exceed a maximum of 48 consecutive hours in a calendar year.

(B) The organization may employ an auctioneer to conduct the sale or auction and pay the auctioneer a reasonable fee not to exceed 20% of the gross receipts.

(C) If two or more exempt organizations or chapters jointly hold a tax-free sale or auction, each is considered to have held a tax-free sale or auction during that calendar year. Each exempt organization that participates in a joint tax-free sale or auction may hold one additional tax-free sale or auction during that calendar year.

(D) An organization described by subsection (b)(11) of this section and which is granted an exemption may hold 10 tax-free sales or auctions during a calendar year.

(i) Each tax-free sale or auction may continue for not more than 72 hours.

(ii) The storage, use, or consumption of a taxable item that is acquired from a qualified organization at a tax-free sale or auction and that is exempted from the sales tax under this paragraph is exempted from the use tax until the item is resold or subsequently transferred.

(iii) If an organization described by subsection (b)(11) of this section and which is granted an exemption jointly holds a tax-free sale or auction with one or more other exempt organizations, the tax-free sale or auction is considered to be one of the organization's 10 tax-free sales or auctions during that calendar year.

(3) Fundraisers. Exempt entities engaged in fundraising activities in conjunction with for-profit entities are not the sellers of any taxable items and do not need to be permitted to collect and remit tax on such sales. See §3.286 of this title (relating to Seller's and Purchaser's Responsibilities[, including Nexus, Permits, Returns and Reporting Periods, and Collection and Exemption Rules]).

(4) The sale of a taxable item is exempt from sales and use tax if:

(A) the seller or retailer is a county fair association or another nonprofit organization that is exempt from federal income taxation under Internal Revenue Code of 1986, §501(a), by being listed as an exempt organization in §501(c)(3) of that code;

(B) the sale takes place at a county fair operated by a county fair association on property owned by the county; and

(C) the purchaser is a person attending or participating in the fair.

(5) For the purposes of this subsection, the following words and terms shall have the following meanings.

(A) County Fair Association--An organization that is exempt from federal income taxation under Section 501(a), Internal Revenue Code of 1986, by being listed as an exempt organization in Section 501(c)(3) of that code and that organizes a county fair that is primarily for the exhibition of local horticultural or agricultural products or livestock. A county fair association does not include an association that holds a license issued after January 1, 2001, under Subtitle A-1, Title 13, Occupations Code (Texas Racing Act); or an association that organizes events other than a county fair, including an exhibition of arts and crafts or a state fair.

(B) Livestock--Includes poultry, cattle, sheep, swine, horses, mules, donkeys, and goats. Livestock does not include domesticated animals such as dogs, cats, guinea pigs, hamsters, or other similar animals.

(6) [(4)] Sales by agencies and instrumentalities of the federal government are subject to tax, and the agencies and instrumentalities must collect and remit tax unless the collection of tax is specifically prohibited by federal law. If the collection is prohibited by specific federal law, the purchaser of the taxable item shall be liable for reporting and paying the tax directly to the state.

(7) [(5)] Sales of governmental publications, records, or documents.

(A) When a governmental body is required to furnish a copy of any document under the Open Records Act, the transaction is not considered the sale of a taxable item. Sales tax is not due on any fee charged by the governmental body for furnishing one or more copies, regardless of whether the copies are certified or the fee is established by statute, ordinance, public official, or state agency.

(B) Sales tax is not due on the fee charged by a governmental body for furnishing a copy or copies of a document not open to public inspection to a person who is authorized to obtain a copy or copies of such document. For example, sales tax is not due on the fee charged by a college for furnishing a student's academic transcript to the student or on the fee charged by the Department of State Health Services for furnishing a person a copy of the person's birth certificate.

(C) Unless such sales are otherwise exempt, sales tax is due on sales of regular publications, records, or general information by a governmental body, even though such publications, records, or information may be open or available to the public by statute. For example, textbooks sold by a state university and magazine subscriptions sold by a state agency are taxable. See §3.299 of this title.

(D) Sales tax collected by state agencies must be remitted in accordance with comptroller accounting requirements.

(i) Organizations that do not qualify for exempt status. Examples of organizations that cannot qualify for exempt status include professional groups, certain mutual benefit or social groups, and political, trade, business, bar, or medical associations. However, certain sales by certain organizations may be exempt. For information on exempt sales by senior citizens' organizations, student organizations affiliated with a college or university, or nonprofit animal shelters, see §3.316 of this title (relating to Occasional Sales; Transfers Without Change in [Joint] Ownership [Transfers]; Sales by Senior Citizens' Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters).

(j) Diplomatic tax exemptions.

(1) Sales tax exemptions provided to foreign diplomatic and consular personnel in the United States are governed by international and federal law as administered by the United States Department of State's Office of Foreign Missions.

(2) Types of exemption cards.

(A) Mission tax exemption cards. Mission tax exemption cards can only be used for official purchases by a foreign consulate or embassy. All purchases must be made in the name of the mission and paid for by a mission check or credit card, not by cash or personal check. The person whose name and photo appear on the card is responsible for ensuring the accuracy of the exemption, but does not need to be present when purchases are made in the name of the mission.

(B) Personal tax exemption cards. Only the person whose photo appears on the front side of the card is permitted to use it to purchase the exempted items that are identified on the card. Personal tax exemption cards are not transferable and may not be used by others.

(3) Procedures for retailers.

(A) Diplomatic tax exemption cards must be presented to the seller at the time of sale for the exemption to apply. If the exemption is not claimed at the time of sale, the comptroller will not refund tax paid on an item which qualifies for a diplomatic tax exemption. The card must be signed.

(B) To document the sale of an item subject to a diplomatic tax exemption, a retailer should retain a copy of the sales invoice or contract that bears the identification number appearing on the diplomatic tax exemption card or should make a photocopy of the front and back of the card.

(C) Certain diplomatic exemption cards are limited to what and how much may be purchased tax free or may require a minimum purchase before the exemption can be claimed. This information is contained on the diplomatic exemption card itself. Retailers who make sales to persons with cards that require purchases to exceed a certain dollar limit should include only those taxable items that are purchased in the same transaction to determine if the appropriate level has been reached. Purchases made in separate transactions may not be added together to reach minimum exemption levels. Neither type of card identified in paragraph (2) of this subsection can be used to obtain the tax-free [ tax free] sale of utilities.

(k) The Alabama-Coushatta, Kickapoo, and Tigua Native American tribes.

(1) The purchase, lease, or rental of a taxable item to a tribal council or a business owned by a tribal council of these Native American tribes is exempt from sales tax. An exemption certificate or purchase order from the tribal council is sufficient proof of the exempt sale.

(2) Sales made by a tribal council or a business owned by a tribal council of these Native American tribes within the boundaries of the reservation are exempt from sales tax if:

(A) the taxable item being sold is made by a member of the tribe; and

(B) the taxable item is a cultural artifact of the tribe.

(3) Sales made off the reservation or sales made on the reservation of items that are not cultural artifacts are taxable.

(l) Bordering states and governmental units of states that border Texas.

(1) The State of Arkansas, State of Louisiana, State of New Mexico, and State of Oklahoma, or a governmental unit of any of those bordering states may qualify for exemption on the purchase, lease, or rental of taxable items, but only to the extent that the bordering state or governmental unit of the bordering state exempts or does not impose a tax on similar sales of items to the State of Texas or a political subdivision of the State of Texas.

(2) A bordering state or a governmental unit of a bordering state may enter into a reciprocal agreement with the comptroller for the exemption of taxable items purchased, leased, or rented to the State of Texas or a political subdivision of the State of Texas.

(3) The purchase, lease, or rental of a taxable item to a bordering state or a governmental unit of a bordering state is exempt from sales tax to the extent allowed under the terms of the reciprocal agreement. An exemption certificate from a qualifying bordering state or a governmental unit of a bordering state is sufficient proof of the exempt sale.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on November 4, 2021.

TRD-202104436

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: December 19, 2021

For further information, please call: (512) 475-0387


CHAPTER 9. PROPERTY TAX ADMINISTRATION

SUBCHAPTER F. LIMITATION ON APPRAISED VALUE ON CERTAIN QUALIFIED PROPERTIES

34 TAC §9.1051, §9.1052

The Comptroller of Public Accounts proposes amendments to §9.1051, concerning definitions and §9.1052, concerning forms.

The amendment to §9.1051 updates paragraph (19) to remove the Annual Eligibility form from the substantive document definition in accordance with the proposed change to the form submission instructions herein.

The amendment to §9.1052(a) deletes paragraphs (3), (4), (7) and (8), i.e. forms 50-773A, 50-773B, 50-827A and 50-827B, and renumbers the subsequent paragraphs. Another amendment is to add a new subsection (b) to replace the deleted forms in subsection (a) with the web based Biennial Progress Report for Texas Economic Development Act Agreements form and to reletter the remaining subsections. These amendments are proposed to make it easier for agreement holders to report their biennial progress. The proposed web-based form questions are derived from the 773 and 827 forms. These proposed questions are available on the comptroller's website at https://comptroller.texas.gov/economy/local/ch313/forms.php.

Another amendment to §9.1052 does not change the text of the rule but changes the Annual Eligibility Report (Form 50-772A) identified in subsection (a)(2). In the form adopted by reference in subsection (a)(2), instructions for submission of the form to the school district and retention of the form by the school district are added. A copy of the form with the proposed instructions is available on the comptroller's website at https://comptroller.texas.gov/economy/local/ch313/forms.php.

Brad Reynolds, Chief Revenue Estimator, has determined that during the first five years that the proposals are in effect, the rules: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rules' applicability; and will not positively or adversely affect this state's economy. These proposals amend current rules.

Mr. Reynolds also has determined that the proposals would have no significant fiscal impact on small businesses or rural communities. The new rules would have no fiscal impact on the state government, units of local government, or individuals. The new proposals would benefit the public by improving the administration of local property valuation and taxation. There would be no anticipated significant economic cost to the public.

Comments on the amendments may be submitted to John Villarreal, Manager, Data Analysis and Transparency Division, Comptroller of Public Accounts, at John.Villarreal@cpa.texas.gov. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendments are proposed under Tax Code, §313.031, which authorizes the comptroller to adopt rules necessary for the implementation and administration of Tax Code, Chapter 313.

The amendments implement Tax Code, Chapter 313.

§9.1051.Definitions.

The following phrases, words and terms, when used in this subchapter shall have the following meanings, unless the context clearly indicates otherwise. Words defined in Tax Code, Chapter 313 and not defined in this subchapter shall have the meanings provided by Tax Code, Chapter 313.

(1) Agreement--The written agreement between the governing body of a school district and the approved applicant on the form adopted by reference in §9.1052 of this title (relating to Forms) to implement a limitation on the appraised value for school district maintenance and operations ad valorem property tax purposes on an entity's qualified property, required by Tax Code, §313.027(d).

(2) Applicant--An entity that has applied for a limitation on appraised value for school district maintenance and operations ad valorem property tax purposes on the entity's property as provided by Tax Code, Chapter 313.

(3) Application--An application for limitation of appraised value limitation for school district maintenance and operations ad valorem property tax purposes on an entity's qualified property on the form adopted by reference in §9.1052 of this title, the schedules attached thereto, and the documentation submitted by an entity for the purpose of obtaining an agreement for a limitation on appraised value from a school district.

(4) Application amendment--Information submitted by an applicant intended to be considered as part of or in support of the application that amends by replacing information that was previously submitted by applicant.

(5) Application supplement--Information submitted by an applicant intended to be considered as part of or in support of the application that has not been previously submitted.

(6) Approved applicant--An applicant whose application has been approved by a school district for a limitation on appraised value agreement according to the provisions of Tax Code, Chapter 313, including any assignees of that applicant.

(7) Application review start date--The later date of either the date on which the school district issues its written notice that an applicant has submitted a completed application or the date on which the comptroller issues its written notice that an applicant has submitted a completed application.

(8) Appraisal district--The county appraisal district that would appraise the property which is the subject of an application.

(9) Appraised value--The value of property as defined by Tax Code, §1.04(8).

(10) Completed application--An application in the form and number and containing all the information required pursuant to §9.1053 of this title (relating to Entity Requesting Agreement to Limit Appraised Value) that has been determined by the school district and the comptroller to include all minimum requirements for consideration.

(11) Comptroller--The Texas Comptroller of Public Accounts or the designated representative of the Texas Comptroller of Public Accounts acting on behalf of the comptroller.

(12) Entity--Any entity upon which a tax is imposed by Tax Code, §171.001 including a combined group as defined by Tax Code, §171.0001(7) or members of a combined group, provided however, an entity as defined herein does not include a sole proprietorship, partnership or limited liability partnership.

(13) Data Analysis and Transparency Division or DAT--The Data Analysis and Transparency Division of the comptroller's office, or the division of the comptroller's office responsible for the administration of Tax Code, Chapter 313, acting through the designated division director or a representative thereof.

(14) Non-qualifying job--A permanent position of employment to perform work:

(A) that includes at a minimum the following requirements:

(i) that is based on the qualified property;

(ii) that is in direct support of activity identified in Tax Code, §313.024(b);

(iii) for at least 1,600 hours a year; and

(iv) over which the applicant has significant degree of control of:

(I) the creation of the job;

(II) the job description; and

(III) the job characteristics or performance of the job through either a business, contractual or vendor relationship; and

(B) is not a qualifying job as that term is defined in Tax Code, §313.021(3) and these rules.

(15) Qualified investment--Property that meets the requirements of Tax Code, §313.021(1).

(16) Qualified property--Land, new building, or new improvement erected or affixed to the land after the application review start date, or eligible tangible personal property first placed in service after the application review start date that:

(A) meets the requirements of Tax Code, §313.021(2), and that is used either as an integral part, or as a necessary auxiliary part, in manufacturing, research and development, a clean coal project, an advanced clean energy project, renewable energy electric generation, electric power generation using integrated gasification combined cycle technology, nuclear electric power generation, a Texas Priority Project, or a computer center;

(B) is clearly distinguished from any existing property and clearly distinguished from any proposed property that is not a new improvement;

(C) is separate from, and not a component of, any existing property;

(D) if buildings or improvements, did not exist before the application review start date or if tangible personal property, was first placed in service after the application review start date;

(E) is not used to renovate, refurbish, upgrade, maintain, modify, improve, or functionally replace existing buildings or existing improvements;

(F) does not replace or modify existing buildings other than expansion of an existing building; and

(G) is not used solely for the transportation of product prior to the commencement, or subsequent to the completion, of an applicable qualifying activity described in subparagraph (A) of this paragraph.

(17) School district--A school district that has received an application for a limitation on appraised value pursuant to Tax Code, Chapter 313 or the designated representative of the school district acting on behalf of the school district.

(18) SOAH--State Office of Administrative Hearings.

(19) Substantive document--A document or other information or data in electronic media determined by the comptroller to substantially involve or include information or data significant to an application, the evaluation or consideration of an application, or the agreement or implementation of an agreement for limitation of appraised value pursuant to Tax Code, Chapter 313. The term includes, but is not limited to, any application requesting a limitation on appraised value and any amendments or supplements, any economic impact evaluation made in connection with an application, any agreement between applicant and the school district and any subsequent amendments or assignments, any school district written finding or report filed with the comptroller as required under this subchapter[, and any completed Annual Eligibility Report (Form 50-772A) submitted to the comptroller]. The term shall not include any employee names or other personal identifying information that is submitted to the comptroller. Positions can be described by job type, category, or general title.

(20) Agreement holder--An entity that has executed an agreement with a school district.

(21) Average weekly wage for manufacturing jobs--Either the average weekly wage:

(A) for all jobs primarily engaged in activities described in Sectors 31 - 33 of the 2007 North American Industry Classification System in a county as identified by the Texas Workforce Commission's Quarterly Employment and Wages (QCEW) webpage available on the Texas Workforce Commission's website; or

(B) for all manufacturing jobs or if the information for subparagraph (A) of this paragraph is not available, as determined by data published annually by the Texas Workforce Commission for the purposes of Tax Code, Chapter 313 for each Council of Government Region, based on Bureau of Labor Statistics, Texas Occupational Employment and Wages (OES) data, as it is posted on the Texas Workforce Commission's website.

(22) Average weekly wage for non-qualifying jobs--The average weekly wage as identified by the Texas Workforce Commission Quarterly Employment and Wages (QCEW) average weekly wages for all private industries for the most recent four quarterly periods for which data is available at the time that an application is deemed complete, as it is posted on the Texas Workforce Commission's website.

(23) First placed in service--The first use of the property by the agreement holder.

(24) New improvement--A building, structure, or fixture that, after the application review start date:

(A) is a discrete unit of property erected on or affixed to land eligible to be qualified property; and

(B) is not erected or affixed as part of maintenance, renovation, refurbishment, improvement, modification, or upgrade of existing property, nor is newly added or proposed to be added property functionally replacing existing property, provided however that a proposed improvement may be considered a new improvement if it is an addition to an existing building that will contain new tangible personal property that did not exist before the application review start date.

(25) Per capita income--Per capita money income in the past 12 months as determined by the United States Census Bureau and reported at its website http://www.census.gov.

(26) Strategic investment area--An area that is:

(A) a county within this state with unemployment above the state average and per capita income below the state average;

(B) an area within this state that is a federally designated urban enterprise community or an urban enhanced enterprise community; or

(C) a defense economic readjustment zone designated under Government Code, Chapter 2310.

(27) Texas Economic Development Act Agreement--The form, adopted by reference in §9.1052 of this title, which provides a template for the terms of an agreement to implement a limitation on appraised value on property within a school district and that has the title Agreement For Limitation On Appraised Value Of Property For School District Maintenance And Operations Taxes.

(28) Texas Priority Project--A project on which the applicant commits to place in service qualified investment of more than $1 billion during the qualifying time period, based on the comptroller review of the application submitted by the school district.

(29) Unemployment--The most recent calendar year unemployment rate, not seasonally adjusted, as determined by the Labor Market & Career Information Department (LMCI) of the Texas Workforce Commission and reported on its website.

(30) Qualifying job--A permanent position of employment that includes at a minimum the following requirements:

(A) provides work for at least 1600 hours a year;

(B) is in direct support of activity identified in Tax Code, §313.024(b);

(C) is based on the qualified property;

(D) is a job over which the applicant has significant degree of control of:

(i) the creation of the job;

(ii) the job description; and

(iii) the job characteristics or performance of the job through either a business, contractual or vendor relationship;

(E) is covered by a group health benefit plan for which the applicant offers to pay at least 80% of the premiums or other charges assessed for employee-only coverage under the plan, regardless of whether an employee may voluntarily waive the coverage;

(F) pays at least 110% of the county average weekly wage for manufacturing jobs in the county where the job is located;

(G) that has not been transferred from another part of the state; and

(H) that has not been created to replace a previous employee.

§9.1052.Forms.

(a) The comptroller adopts by reference the following forms:

(1) Application for Appraised Value Limitation on Qualified Property (Form 50-296A);

(2) Annual Eligibility Report (Form 50-772A);

[(3) Biennial Progress Report for Texas Economic Development Act; Three-Digit Tax Code, Chapter 313 Projects (Three-Digit Form 50-773A);]

[(4) Biennial Progress Report for Texas Economic Development Act: Four-Digit Tax Code, Chapter 313 Projects (Four-Digit Form 50-773B);]

(3) [(5)] Job Creation Compliance Report (Form 50-825); and

(4) [(6)] Texas Economic Development Act Agreement (Form 50-826). [;]

[(7) Three-Digit Biennial School District Cost Data Request (CDR) (Three-Digit Form 50-827A); and]

[(8) Four-Digit Biennial School District Cost Data Request (CDR) (Four-Digit Form 50-827B).]

(b) Agreement holders must complete and submit the web based Biennial Progress Report for Texas Economic Development Act Agreements form.

(c) [(b)] Copies of the forms are available for inspection at the office of the Texas Register or may be obtained from the Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3528. The forms may be viewed or downloaded from the comptroller's website, at https://www.comptroller.texas.gov/economy/local/ch313/forms.php. Copies may also be requested by calling our toll-free number, (800) 531-5441, extension 34679.

(d) [(c)] In special circumstances, a school district may obtain prior approval in writing from the comptroller to use an application or agreement form that requires additional information, or sets out the required information in different language or sequence than that which this section requires.

(e) [(d)] The comptroller may periodically update the dates, form version numbers, and/or years in the appropriately marked sections of the forms described in subsection (a) of this section.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on November 5, 2021.

TRD-202104453

Don Neal

General Counsel, Operations and Support Legal Services

Comptroller of Public Accounts

Earliest possible date of adoption: December 19, 2021

For further information, please call: (512) 475-0387