Nonprofit educational organizations (devoted solely to systematic instruction with a regularly scheduled curriculum, faculty and enrolled student body at a place where the educational activities are regularly conducted) and the State's unincorporated agencies are considered exempt organizations under the Texas sales and use tax laws. (Texas Tax Publication 96-122).
Exempt organizations may buy, lease or rent taxable items without paying sales and use tax if those items are necessary to their function as an exempt organization. However, an exempt organization which sells taxable items must obtain a sales tax permit and is responsible for collecting and remitting tax on all sales of taxable items made by the organization unless such sales are otherwise exempt from the tax. (Texas Tax Code Section 3.322).
See Appendix B for an index which lists alphabetically by tax type all administrative tax rules relating to Texas State Sales Tax.
Generally, exempt groups must obtain sales tax permits and collect and remit sales tax on all items they sell. The organization is responsible for collecting and remitting tax on all sales of taxable items made by the organization unless such sales are otherwise exempt from tax. Examples of taxable sales include bookstore items, computers, telecommunications, food services, amusement services, printing services, and sale of seedlings. For additional clarification of the state tax law on these or other taxable items, see the State Comptroller's Texas Taxes.
8.2.A Sales Taxable or Exempt Based on Character of Item
8.2.A.1 Food, Food Products, Meals, and Food Service
Food sales by a university are taxable. These taxable sales include: the sale of food, meals and drinks prepared, served, or sold ready for immediate consumption; university-owned vending machines; catered events to non-exempt organizations; and concession stand operations at sporting events. Thus meals served by the university to students, visitors, or employees are all taxable. Food "ready for immediate consumption" means the type of food, beverages, or meals normally prepared, served, or sold by restaurants, lunch counters, cafeterias, etc., which, when sold, require no further preparation prior to consumption. (Texas Tax Code Section 3.293(b)).
If a privately owned third party owns and operates an eating facility or vending machine, the third party is responsible for collecting and remitting the sales tax. However, if the university sells meal plans to students, this constitutes a sale of a food item subject to taxation by the university. Note that if a student has not purchased a meal plan but instead purchases the meal directly at the third party-owned dining facility, the third party is responsible for collecting the sales tax.
A nonprofit organization may hold a tax-free annual banquet or other food sale provided:
- the affair is not professionally catered;
- not held in a restaurant, hotel or similar place of business;
- not in competition with a retailer required to collect tax; and
- the food is prepared, served and sold by members of the organization.
This exemption from the requirement to collect sales tax does not extend to the sale of alcoholic beverages. (Texas Tax Publication 96-122).
8.2.A.2 Amusement Services
Amusement services include "entertainment, recreation, sport, pastime, diversion, or enjoyment that is a pleasurable occupation of the senses." Sales tax is not due on the sale of an amusement service if the service is provided exclusively by an educational organization for educational purposes as long as no part of the proceeds goes to the benefit of a private individual. An amusement will not be considered "solely for educational purposes" unless either:
- 100% of the proceeds from the admissions go to the educational organization; or
- students at the educational institution actually perform the amusement.
(Texas Tax Code Section 3.298).
8.2.B Sales Exempt Based on Character of Transaction
An educational organization is not required to collect sales tax on the sales price of taxable items sold at a sale or auction held by the organization only twice a calendar year and each sale lasting only one day (24 hours). An organization may hold the two tax-free sales consecutively, but the two tax-free sales cannot exceed a maximum of 48 consecutive hours in a calendar year. (Texas Tax Code Section 3.322).
If an auctioneer's services are needed, the organization may employ an auctioneer to conduct the sale but his/her fee cannot exceed 20% of the gross receipts. Also, if two or more exempt organizations jointly hold a tax-free sale, each is considered to have held a tax-free sale during that calendar year.
8.2.C Sales to an Exempt Customer
In most cases, you will need to get a completed exemption certificate from the customer when an item is sold tax-free. Keep the exemption certificate on file for support in case of a sales tax audit by the State Comptroller's office.
Labor/services may be taxable if it is part of the price of goods sold, rented or leased. Products of taxable labor include photographs, engraving, printing, and catering. Installation labor is also taxable when the person who sold, rented or leased it installs the item. Taxable services include amusement services, data processing services, landscaping and lawn maintenance services, and surveying services. (Texas Tax Publication 96-259).
8.4 Merchandise Shipped out of State
Texas tax does not have to be collected on goods shipped directly to the customer outside of Texas. Documentation should be kept for support of interstate shipment.
8.5 Freight Charges
Shipping and freight charges are taxable as part of the price of taxable goods and services.
8.6 Student Organizations
Student organizations are not allowed to use the sales tax exemption certificate granted to the university by the Comptroller's Office.
Effective October 1, 1995, The State of Texas passed into law a limited sales tax exemption which allows university student organizations to hold one, one-day tax-free fund-raising sale each month. The organization must be affiliated with an accredited Texas college or university, and every two years, it must file with the Comptroller a certification issued by the school verifying that it is an affiliated organization. The organization's primary purpose must be something other than engaging in business or making a profit. (Texas Tax Bulletin 96-122).
College and university student organizations must continue to pay sales tax when buying taxable items for their own use unless the organizations qualify for exemption under IRC Section 501(c)(3).
8.7 Deposit and Reporting Requirements
8.7.A Deposit Rules
Under Texas Government Code Section 404.094(a), all state agencies that collect sales tax must deposit them in the State Treasury within three business days of receipt. The sales tax (less the sales tax discount) must be deposited into an agency's D23 Fund that looks up the correct appropriation fund, GAAP fund, and GAAP fund type. State sales taxes are deposited into the General Revenue Fund, Appropriated Fund 001 and City, county, transit authority, and special purpose district sales taxes are deposited into the City, County, Metropolitan Transit Authority, and Special Purpose District Sales Tax Trust, Appropriated Fund 0882.
8.7.B Reporting Requirements
For those required to file, sales tax returns are due on or before the 20th of the month after the reporting period. The "reporting period" may be a month, a calendar quarter, or a calendar year depending upon the dollar value collected. Taxpayers who collect $500 or more in sales tax a month should file monthly. In order to file quarterly, collections of sales tax should be less than $500 per month or $1500 per quarter. Yearly filers are taxpayers who collect less than $1000 in sales tax per year.
8.8 Tax Rates
The state sales tax rate is 6.25 percent. Local taxing authorities (i.e., cities, counties, transit authorities and special purpose districts) may also impose a sales or use tax of up to 2.00 percent. Thus the maximum sales and use tax that may be charged is 8.25 percent. For a list of local rates and total tax rates, see State Comptroller's Tax Rates.