2023 Texas Statutes › Tax Code › Title 2 - State Taxation › Subtitle F - Franchise Tax; Credits › Chapter 171 - Franchise Tax › Subchapter B. Exemptions › Section 171.063. Exemption-Nonprofit Corporation Exempt From Federal Income Tax

Sec. 171.063.  EXEMPTION-NONPROFIT CORPORATION EXEMPT FROM FEDERAL INCOME TAX.  (a)  The following corporations are exempt from the franchise tax:
(1)  a nonprofit corporation exempted from the federal income tax under Section 501(c)(3), (4), (5), (6), (7), (8), (10), or (19), Internal Revenue Code  which in the case of a nonprofit hospital means a hospital providing community benefits that include charity care and government-sponsored indigent health care as set forth in Subchapter D, Chapter 311, Health and Safety Code;
(2)  a corporation exempted under Section 501(c)(2) or (25), Internal Revenue Code, if the corporation or corporations for which it holds title to property is either exempt from or not subject to the franchise tax;  and
(3)  a corporation exempted from federal income tax under Section 501(c)(16), Internal Revenue Code.
(b)  A corporation is entitled to an exemption under this section based on the corporation's exemption from the federal income tax if the corporation files with the comptroller evidence establishing the corporation's exemption.
(c)  A corporation's exemption under Subsection (b) of this section is established by furnishing the comptroller with a copy of the Internal Revenue Service's letter of exemption issued to the corporation.
(d)  If the Internal Revenue Service has not timely issued to a corporation a letter of exemption, evidence establishing the corporation's provisional exemption under this section is sufficient if the corporation timely files with the comptroller evidence that the corporation has applied in good faith for the federal tax exemption.  The evidence must be filed not later than the 15th month after the day that is the last day of a calendar month and that is nearest to the date of the corporation's charter or certificate of authority.
(e)  An exemption established under Subsection (c) or (d) of this section is to be recognized, after it is finally established, as of the date of the corporation's charter or certificate of authority.
(f)  If a corporation timely files evidence with the comptroller under Subsection (d) of this section that it has applied for a federal tax exemption and if the application is finally denied by the Internal Revenue Service, this chapter does not impose a penalty on the corporation from the date of its charter or certificate of authority to the date of the final denial.
Text of subsection effective until January 01, 2026
(g)  If a corporation's federal tax exemption is withdrawn by the Internal Revenue Service for failure of the corporation to qualify or maintain its qualification for the exemption, the corporation's exemption under this section ends on the effective date of that withdrawal by the Internal Revenue Service.  The effective date of the withdrawal is considered the corporation's beginning date for purposes of determining the corporation's privilege periods and for all other purposes of this chapter, except that if the corporation would have been subject to Section 171.001(d) in the absence of the federal tax exemption, and the effective date of the withdrawal is a date earlier than the date the corporation would have become subject to the franchise tax as provided by Section 171.001(d), the date the corporation would have become subject to the franchise tax under that section is considered the corporation's beginning date for those purposes.
Text of subsection effective on January 01, 2026
(g)  If a corporation's federal tax exemption is withdrawn by the Internal Revenue Service for failure of the corporation to qualify or maintain its qualification for the exemption, the corporation's exemption under this section ends on the effective date of that withdrawal by the Internal Revenue Service.  The effective date of the withdrawal is considered the corporation's beginning date for purposes of determining the corporation's privilege periods and for all other purposes of this chapter.
(h)  A requirement that a nonprofit hospital provide charity care and community benefits under Subsection (a)(1) may be satisfied by a donation of money to the Texas Healthy Kids Corporation established by Chapter 109, Health and Safety Code, if:
(1)  the money is donated to be used for a purpose described by Section 109.033(c), Health and Safety Code;  and
(2)  not more than 10 percent of the charity care required under any provision of Section 311.045, Health and Safety Code, may be satisfied by the donation.
Acts 1981, 67th Leg., p. 1694, ch. 389, Sec. 1, eff. Jan. 1, 1982.  Amended by Acts 1987, 70th Leg., ch. 324, Sec. 3, eff. Aug. 31, 1987;  Acts 1989, 71st Leg., ch. 239, Sec. 1, eff. June 2, 1989;  Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.04, eff. Jan. 1, 1992;  Acts 1995, 74th Leg., ch. 781, Sec. 6, eff. Sept. 1, 1995;  Acts 1995, 74th Leg., ch. 1002, Sec. 4, eff. Jan. 1, 1996;  Acts 1997, 75th Leg., ch. 550, Sec. 3, eff. Jan. 1, 1998;  Acts 1997, 75th Leg., ch. 1185, Sec. 3, eff. Jan. 1, 1998;  Acts 1999, 76th Leg., ch. 1467, Sec. 2.50, 2.51, eff. Jan. 1, 2000.
Amended by:
Acts 2015, 84th Leg., R.S., Ch. 329 (S.B. 1049), Sec. 5, eff. January 1, 2016.
Acts 2015, 84th Leg., R.S., Ch. 329 (S.B. 1049), Sec. 6, eff. January 1, 2020.
Acts 2021, 87th Leg., R.S., Ch. 859 (S.B. 938), Sec. 6, eff. January 1, 2022.
Acts 2021, 87th Leg., R.S., Ch. 859 (S.B. 938), Sec. 7, eff. January 1, 2026.