Did a cemetery association qualify for the former Texas franchise-tax exemption when its activities were not exclusively providing burial places?

Plain-English summary

The cemetery association did not qualify for exemption because its activities were not exclusively the provision of burial places.

The taxpayer urged a broader reading of Section 171.059. The Comptroller rejected it, emphasizing that Texas tax exemptions were not favored and had to be narrowly construed.

The letter cited Administrative Hearing Decision No. 5859 as the only known decision interpreting the exemption provision. That decision denied exemption to an association whose activities were not exclusively providing burial places. The Comptroller therefore reaffirmed its earlier denial.

The response does not identify the taxpayer's additional activities, so no more specific factual reason can be published.

The letter separately described 1999 small-business relief: for reports due on or after January 1, 2000, a corporation owed no franchise tax if gross receipts for both taxable capital and taxable earned surplus were each below $150,000. It still filed a short information report and public information report.

Currency note: Both the exemption discussion and threshold arise under the former franchise tax. Confirm current exemption statutes and filing rules.

What this means for you

Cemetery associations

Under the historical ruling, mixed activities defeated an exemption limited to associations exclusively providing burial places.

Small organizations denied exemption

The separate receipts threshold could produce no tax without converting the organization into an exempt entity. Filing duties remained.

Common questions

Q: Why was the exemption denied?
A: The association's activities were not exclusively providing burial places.

Q: What other activities did it conduct?
A: The letter does not say.

Q: Did the small-business rule eliminate all filings?
A: No. It required a short information report and public information report.

Citations and references

• Texas Tax Code Sec. 171.059
• Administrative Hearing Decision No. 5859, accession 7410H1006D06
• Senate Bill 441, 76th Legislature

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9910053L

Original ruling text

October 5, 1999

Dear **:

Thank you for the additional information you provided concerning franchise tax
exemption for COMPANY A, Taxpayer Number **.

Respectfully, the interpretation of Tax Code Section 171.059 that you urge
conflicts with Texas law governing the construction of statutes that provide
for exemptions from tax. Texas law is well settled that exemptions from tax
are not favored and that all such statutes are to be narrowly construed.

We are aware of only one decision, an administrative hearing decision,
interpreting the exemption provision that is now Section 171.059. In that
decision, the hearing examiner held that an association whose activities were
not exclusively the providing of places of burial did not qualify for the
exemption.

Accordingly, we reaffirm our previous determination that the taxpayer does not
qualify for franchise tax exemption under Section 171.059.

You may access the administrative hearing decision, Number 5859, through our
website at www.window.state.tx.us. Click on Texas Taxes, then click on STAR
(State Tax Automated Research System). The decision accession number is
7410H1006D06.

As you may already know, recent legislation provides that a corporation will
incur no franchise tax if its gross receipts are below a certain amount. The
legislation is effective for reports due on or after January 1, 2000.

Specifically, a corporation will owe no franchise tax if its gross receipts for
both taxable capital and taxable earned surplus are each less than $150,000
during the relevant report period. A corporation meeting those requirements
will merely file a short form information report along with a public
information report.

If you have any questions, please call me toll-free at 1-800-531-5441,
extension 3-4931, or directly at 512/463-4931. Alternatively, you may write to
the attention of the Exempt Organizations Section, P.O. Box 13528, Austin,
Texas 78711-3528.

Sincerely yours,

William E. York
Exempt Organizations Section