TEXAS SALES TAX EXEMPTION FOR HOMEOWNERS ASSOCIATIONS
TEXAS SALES TAX EXEMPTION
FOR HOMEOWNERS ASSOCIATIONS - Consider the Economics From Becoming Tax-Exempt - • The Internal Revenue Code sub-section that applies is: 501(c)(4). It refers to “Social Welfare Organizations". Generally, the IRS sees “Social Welfare Organizations" as similar to charities under sub-section 501(c)(3) with the difference that private support is allowed. • Tax-exempt status means getting sales tax savings. For an association spending $100,000 on services subject to state sales tax, the annual savings will be at least $8,000. For more savings, look at the federal tax return the association files. Process and Procedure • The Texas State Comptroller’s office responds to a separate request for the tax-exempt status. • A four year statute of limitations on claims is effectively changing under state law effective in September, 2009. • The Refund Claim Process: 1.) The refund claim process requires copying the bills that show sales taxes were paid. 2.) A summary worksheet accounting for each bill is prepared for each vendor’s bills. The bills can include all bills paid going back to the time still open under the statute. See discussion below. 3.) Also, a Comptroller’s form to assign the refund is prepared for each vendor to sign. 4.) The association sends the bills, summary worksheet and the assignment form to the vendors for signing and return. 5.) When returned, the package is submitted to the State Comptroller for processing. • The Comptroller has the right to audit the information filed. Audits are more common for larger claims. • Some vendors may be willing to make a direct refund, but they do not want to pay with interest. Tax Refunds Are Being Lost • Sales Tax Refund Claims Are Getting Smaller and Will Be Gone in September, 2013. • History The 2009 legislative session made the change. • Until 2009, sales taxes HOA’s paid in the prior four years could be claimed for a refund when an HOA got tax-exempt status under the Internal Revenue Code sub-section 501(c)(4). This right to four years’ worth of refunds was because of the four year statute of limitations on claims under Texas Tax Code law. • New Tax Law in Texas: Effectively, the four year statute of limitations on claims is changing under new state law that began to apply in September, 2009. The new law is at Texas Tax Code sub-section 151.310(f). Restated briefly, it provides that the earliest date the tax exemption is effective is the postmark date of the exemption request sent to the Comptroller’s office. • Because of the new law, the full four years for sales tax refund claims is getting shorter. • There have been three different written statements by the Texas Comptroller on this new law. Then recently a policy statement gives reason to feel hopeful about refunds and expect it will be worth while to make the claims. • This means for HOAs that can qualify for an exemption from federal income taxes under Section 501(c)(4), Internal Revenue Code; the months open for claims is getting shorter by one month as each month is passing. • Tax Effect - All Refund Money Will Be Lost for Prior Years: One thing is clear, because of the change in the Texas Tax Code: four years after September 1, 2009, there will be almost no more claims for sales tax refunds. • Now is a good time for all associations with the potential for tax-exempt status to consider this and the money they can save (and be paid too). • We are hopeful about refunds and expect it will be worth while to make the claims. • Disclosure Pursuant to Treasury Regulations in Circular 230: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.