Our cemetery association has a federal 501(c)(13) income tax exemption and relies on donations to maintain the cemetery grounds. A firm sold us erosion-control matting tax-free and later asked for our state sales tax exemption certificate, but we don't have one. Can we get exempt status, retroactively if possible, to cover the tax on those materials?

Plain-English summary

A cemetery association, federally tax-exempt under Internal Revenue Code 501(c)(13) since 1982 and funded mostly by donations and a small trust fund, had donated land added to its grounds that eroded badly after heavy rain. In 1998, the association hired a firm to install erosion-control matting, which board members installed themselves; the firm initially sold the materials tax-free. Later, the firm asked for the association's state sales tax exemption certificate — and the association discovered it had never actually applied for or received one. It asked the Comptroller for exempt status, ideally made retroactive to cover the tax on the matting materials.

The core answer: no exemption tied to the federal 501(c)(13) status. The Texas Tax Code does not provide a sales tax exemption for an organization simply because it holds a federal 501(c)(13) income tax exemption — that's a different tax system entirely, and Texas doesn't automatically mirror it.

But there's a narrower, real carve-out specific to cemetery associations — for labor only. Effective October 1, 1987, the Texas Legislature expanded the sales tax base to cover "real property services," including building/grounds keeping and landscaping/lawn maintenance services — meaning if you hire a lawn company, you now generally pay tax on both labor and materials under Rule 3.356. Shortly after that law changed, however, a policy decision specifically excluded cemetery associations from paying tax on the LABOR portion of maintaining cemetery grounds — retroactive all the way back to October 1, 1987.

Materials remain taxable regardless. That labor carve-out doesn't extend to materials and supplies: they were taxable before the 1987 law change and remain taxable today, even when purchased exclusively to maintain or repair cemetery grounds. So the association's erosion-matting purchase stays taxable, and there's no retroactive relief available for it.

What this means for you

Cemetery associations and similar 501(c)(13) organizations

Don't assume your federal income tax exemption carries over to Texas sales tax — it doesn't. You do get a real, retroactive-to-1987 break on LABOR charges for grounds maintenance and landscaping services under the cemetery-specific policy carve-out, but materials and supplies you buy for that same maintenance work remain fully taxable.

Landscaping, grounds-keeping, and lawn maintenance contractors serving cemetery associations

You can bill labor for cemetery grounds maintenance without collecting sales tax on that labor portion (a cemetery-specific exception under Rule 3.356), but you should still collect tax on the materials/supplies portion of the job.

Other nonprofits assuming a federal tax exemption covers state sales tax

This letter is a clear, generalizable reminder: a federal income tax exemption (501(c) status of any kind) does not automatically confer a Texas sales tax exemption — the two systems are separate, and Texas sales tax exemptions have their own specific statutory/policy basis.

Accountants and tax professionals advising cemetery associations or nonprofits

Track the labor-vs-materials line carefully for cemetery grounds maintenance: labor is exempt under the retroactive-to-1987 cemetery policy carve-out, but materials/supplies purchased for that maintenance remain taxable, with no exemption certificate available to change that.

Common questions

Q: Does a federal 501(c)(13) exemption give a cemetery association Texas sales tax exempt status?
A: No — the Texas Tax Code doesn't provide a sales tax exemption tied to that federal income tax exemption category.

Q: Do cemetery associations get any real property services break?
A: Yes — labor charges to maintain cemetery grounds (grounds keeping, landscaping, lawn maintenance) have been excluded from tax by policy, retroactive to October 1, 1987, when real property services first became taxable.

Q: Are materials and supplies used for cemetery grounds maintenance also exempt?
A: No — materials and supplies remain taxable, both before and after the 1987 law change, even when used exclusively for cemetery maintenance.

Q: Can the association get a refund on the erosion matting it already bought?
A: No — the materials purchase is taxable regardless of exempt status, so there's no retroactive relief available for that specific purchase.

Q: Can I rely on this letter for my own cemetery association or nonprofit?
A: No. This opinion is based on the facts presented, and other facts, though similar, may provide a different result; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.356 (real property services — building/grounds keeping, landscaping, lawn maintenance; cemetery association labor carve-out retroactive to 10/1/1987)

The letter also references Internal Revenue Code § 501(c)(13) as the association's federal income tax exemption category, which does not itself confer any Texas sales tax exemption.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9901096L

Original ruling text

January 25, 1999

Dear Mr. **:

This is in response to your request for a ruling on the exemption from state
sales tax on the purchase of materials for maintenance of the cemetery. I have
restated your fact situation and request below, followed by my response.

The Association applied for and received a Federal income tax, 501 (c)(13),
exemption as of January 4, 1982. Since its inception, the Association has been
concerned entirely with the maintenance and upkeep of the cemetery grounds
which has included trimming trees and shrubs, mowing and leveling of the grave
sites. You have relied on donations and limited income from a trust fund to
operate.

Several years ago, some additional land was donated to the Association to
provide for future expansion of the cemetery. This land was fenced and cleared
but, due to heavy rainfall, began to erode to the point it could not be mowed
and had become an eyesore. In 1998, the Association contracted with a firm
from ** to provide erosion matting that would be installed by
Association board members. The firm sold you the materials tax free and the
work was performed.

Subsequently, the firm contacted you requesting your State Sales Tax Exemption
certificate. Looking through your records you could not find a record of the
association requesting exemption. In contacting our office you were told that
you did not have exempt status from state sales tax but that you could apply
for it.

You are requesting that your association be granted exemption from state sales
tax. If possible, you are asking that it be made retroactive so that you may
be absolved from the sales tax incurred on the matting materials.

Response: The Texas Tax Code does not provide an exemption from sales tax for
an association exempted under Internal Revenue Code 501 (c)(13). However, a
cemetery association is not required to pay sales tax for charges to "maintain"
the Cemetery grounds.

Some background on how this came about. Effective October 1, 1987, the
legislature expanded the sales tax base to include the taxability of real
property services. Among other things, real property services includes building
and grounds keeping services, and landscaping and lawn maintenance services.
Consequently, if someone hires a lawn company to maintain their lawn, they pay
tax for these services on both the labor and the materials. See the enclosed
Rule 3.356 on real property services.

A policy decision was made shortly after the law changed to exclude the
taxability of these services when performed for a Cemetery association. The
exemption is retroactive to October 1, 1987, however it applies to labor only.
Materials and supplies were taxable before the law change and they are still
taxable. Therefore, the Association's purchase of the matting is still taxable
even if used exclusively to maintain or repair Cemetery grounds.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division