Our organization is exempt from federal income tax under Section 401(a) of the Internal Revenue Code (a qualified pension/employee benefit trust). Does that also make us an exempt organization for Texas sales and use tax purposes?

Plain-English summary

An organization asked the Comptroller whether being exempt from federal taxation under IRC Section 401(a) (the section covering qualified pension, profit-sharing, and other employee benefit trusts) also makes it an exempt organization for Texas sales and use tax purposes.

The answer is no. Texas Tax Code 151.310(a)(2) exempts only organizations that qualify for federal exemption under IRC Section 501(c)(3), (4), (8), (10), or (19) — a specific, limited list. The Legislature did not extend the sales-tax exemption to every organization that qualifies for federal exemption under Section 501(c) generally, and it did not include Section 401(a) organizations at all. The Comptroller states plainly that it has no authority to broaden this list on its own.

What this means for you

Employee benefit trusts and pension plans

If your organization's federal tax-exempt status comes from IRC Section 401(a) (e.g., a qualified pension plan, profit-sharing plan, or other employee benefit trust), that status alone does not exempt your purchases from Texas sales and use tax. Federal 401(a) exemption and Texas sales-tax-exempt status are separate questions.

Nonprofits organized under other 501(c) categories

Even federal 501(c) exemption doesn't automatically carry over to Texas sales tax. Only organizations qualifying under the specific subsections listed in Tax Code 151.310(a)(2) — 501(c)(3), (4), (8), (10), or (19) — get the Texas sales-tax exemption. If your organization's federal exemption is under a different 501(c) subsection (or under 401(a), as here), you do not qualify for this exemption based on federal status alone.

Accountants and tax professionals

When advising a client on Texas sales-tax-exempt status, don't assume any flavor of federal tax exemption is sufficient — check specifically whether the client's federal exemption falls within the enumerated 501(c) subsections in Tax Code 151.310(a)(2). The Comptroller has confirmed it cannot administratively expand that list.

Common questions

Q: Does federal tax-exempt status under IRC Section 401(a) make my organization exempt from Texas sales and use tax?
A: No. Organizations exempt from federal taxation under Section 401(a) are not exempt organizations for Texas sales and use tax purposes.

Q: Which federal exemption categories does Texas recognize for the sales-tax exemption?
A: Tax Code 151.310(a)(2) exempts only organizations qualifying under IRC Section 501(c)(3), (4), (8), (10), or (19).

Q: My organization qualifies for federal exemption under a 501(c) subsection not listed above — are we exempt from Texas sales tax?
A: No. The Legislature did not exempt all organizations qualifying under Section 501(c) generally — only those falling within the specific subsections cited in Tax Code 151.310(a)(2).

Q: Can the Comptroller extend the sales-tax exemption to 401(a) organizations or other unlisted 501(c) categories?
A: No. The letter states the Comptroller does not have the authority to broaden the exemption beyond what the Legislature enacted.

Q: Can I rely on this letter for my own organization's exemption status?
A: No. This opinion is based on the facts presented, and STAR letters can be relied on only by the taxpayer to whom they were directly issued.

Citations and references

• Tex. Tax Code 151.310(a)(2) — exempts organizations qualifying under IRC Section 501(c)(3), (4), (8), (10), or (19)
• IRC Section 401(a) — qualified pension, profit-sharing, and employee benefit trusts (federal exemption only; does not confer Texas sales-tax exemption)
• IRC Section 501(c)(3), (4), (8), (10), (19) — the specific federal exemption categories that do qualify for the Texas sales-tax exemption under Tax Code 151.310(a)(2)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9206415L

Original ruling text

June 17, 1992

Dear **:

Thank you for your letter of June 1, 1992, concerning the sales tax status of
organizations exempt from federal taxation under Section 401(a) of the Internal
Revenue Code.

Organizations exempt from federal taxation under Section 401(a) of the Internal
Revenue Code are not exempt organizations for sales and use tax purposed.
Chapter 151.310(a)(2) of the Texas Tax exempts organizations qualifying for
exemption under Section 501(c)(3), (4), (8), (10), or (19) of the Internal
Revenue Code.

The Legislature did not exempt all organizations that qualify for exemption
from federal taxation under Section 501(c) from sales and use tax. Only those
organizations cited in the preceding paragraph were exempted. The Comptroller
does not have the authority to broaden the exemption to include 401(a)
organizations.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call toll free 1-800-252-55555, extension 3-4683 if you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,

Tax Administration Division