What You’ll Learn
If you’re a nonprofit in Texas, or you’re a nonprofit considering fundraising or other activities in Texas, you must understand the requirements that Texas has established for nonprofits operating in the state.
How can you become familiar with these laws? Where should you start?
Start here. This state profile includes the basic requirements nonprofits must consider. Reading the profile and implementing appropriate compliance measures will help you prepare your organization for success in Texas.
Getting to Know the State Nonprofit Corporation Law
*Important primarily for nonprofits incorporated in Texas
Emma Woodhouse, handsome, clever, and rich, with a comfortable home and happy disposition, seemed to unite some of the best blessings of existence; and had lived nearly twenty-one years in the world with very little to distress or vex her. She was the youngest of the two daughters of a most affectionate, indulgent father; and had, in consequence of her sister’s marriage, been mistress of his house from a very early period. Her mother had died too long ago for her to have more than an indistinct remembrance of her caresses; and her place had been supplied by an excellent woman as governess, who had fallen little short of a mother in affection.
- Emma, Jane Austen
When reading a novel, we get to know a fictional character by the author’s description. The author tells us about the character’s appearance, purpose, actions, mannerisms, and values.
Nonprofit corporations are something like fictional characters.
We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us the organization’s name, purpose, way of acting, and method of making decisions.
To get to know your own nonprofit, be sure to review the sections below.
State Nonprofit Corporation Law
Indemnification: Not Present; Not sure what “indemnification” is? Need to review the basics? See Bylaws Module 8: Indemnification.
For Religious Nonprofits
Nonprofit Religious Corporation Act: Texas’ nonprofit corporation law expressly: (a) acknowledges an option for nonprofit corporations to incorporate for religious purposes and (b) includes specific provisions to protect the right of nonprofits incorporated for religious purposes to self-government in internal affairs. The law does not include an option to incorporate expressly as a nonprofit religious corporation. Tex. Bus. Orgs. Code§ 22.101; Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?”
Reliance on Religious Guidance in Governance: Texas law permits a director to rely on guidance from religious figures within his or her faith tradition in the fulfillment of the director’s fiduciary duties. Tex. Bus. Orgs. Code§ 22.234; Tex. Bus. Orgs. Code§ 22.222
Understanding Religious Liberty in this State
*Important for all nonprofits doing business in Texas, whether incorporated in Texas or elsewhere
The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.
- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).
Sometimes, the state or local government (like the city or county) makes laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.
For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.
So what do you need to do? Be aware of the laws listed below. If any of the laws impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.
Religious Liberty Protections
State Religious Freedom Restoration Act: Texas has enacted a RFRA that protects the religious free exercise of all individuals and entities by requiring government burdens on religious exercise to satisfy strict scrutiny. These protections originate in a statute rather than the state constitution. Tex. Civ. Prac. & Rem. Code § 110.003; Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.
State Constitutional Protection of Free Exercise: The Texas Constitution, in the constitutional text itself, provides stronger protections for religious free exercise or worship than the federal First Amendment, as incorporated. Tex. Const., art. I, §§ 4, 5, and 6
State Blaine Amendment: The Texas Constitution contains a Blaine Amendment that broadly restricts faith-based organizations’ freedom to participate in public benefit programs on the same terms as similarly situated secular institutions. Current U.S. Supreme Court precedent has rendered this language ineffective, but it could become effective in the future if Court precedent changes. Tex. Const., art. I, § 7; Not sure what a Blaine Amendment is? Review the basics here.
Other Relevant State Laws and Regulations
Texas does not currently have a statewide public accommodation law. Be sure you understand whether any local public accommodation regulations apply to your organization.
Religious Freedom and Public Accommodation Laws: Texas has no nondiscrimination laws related to public programming and facilities. Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.
Protections for Religious Exercise in State of Emergency: Texas has constitutional language protecting religious exercise during a state of emergency. Tex. Const. art. I, § 6-a, Tex. Civ. Prac. & Rem. Code § 110.0031
Key Employment Laws and Regulations
In addition to tracking with the protected classes in the federal anti-discrimination employment law (race, color, religion, sex, and national origin), Title VII of the Civil Rights Act of 1964, Texas prohibits employers from discriminating on the basis of age and disability. An employer is any person who has fifteen or more employees for twenty or more weeks each year. Texas law includes a religious accommodation at Tex. Lab. Code § 21.109. Local governments may also have employment-related regulations. An attorney can help you understand what requirements apply to your organization.
Religious Freedom for Employees: Tex. Lab. Code § 21.108
Conducting Activities or Programs in this State
Understanding the Business Registration Requirement
*Important primarily for nonprofits doing business in Texas but incorporated elsewhere
If you are a foreign entity fundraising or conducting activities in this state, you must consider whether you need to register as a foreign nonprofit corporation. The state law requires foreign entities that are “conducting a…not-for-profit activity” to register. An attorney can help you decide whether you need to register based on the type and volume of activities you have in this state.
Fundraising and Charitable Registration in This State
How to Know (And What to D0) If You're Fundraising In This State
*Important for both Texas and Foreign Nonprofits
Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.
In this state, charitable solicitation registration is not required, except for certain public safety, police, and veteran's organizations. Be sure to review other state registration and tax requirements, and stay apprised of updates by visiting the applicable state agency's website.
If You're Fundraising In Multiple States, Make Sure You Understand the URS
Evaluate Whether You'll Need a Registered Agent
If you are a foreign entity fundraising in this state, you must consider completing a foreign not for profit registration and designating a registered agent in state. More information about this is included below. See Tex. Bus. & Com. Code § 9.004.
Follow the Rules About Communicating with the Public
This state does not require organizations to post specific language when conducting charitable solicitations unless the organization is fundraising for public safety charities, police, and veterans organizations.
Charitable Registration Statute
Charitable Registration Exemption Statute
Annual Report Requirement
Audit Requirements: Texas does not require the submission of reviewed or audited financials as a condition of maintaining authorization to fundraise in the state.
Get Acquainted with State and Local Taxes and Exemptions
State and Local Taxes
*Important for all nonprofits doing business in Texas, whether incorporated in Texas or elsewhere
In this state, organizations which have received federal income tax exemption are also exempt from the state franchise tax. However, to receive this exemption, organizations must apply. The exemption is not automatic. See Texas (Tex. Tax Code Ann. § 171.0002(b)(4)(“taxable entity” does not include an entity that is exempt from taxation under Subchapter B, including religious nonprofits, under Tex. Tax Code Ann. § 171.058).
It is also important to consider whether your organization might be eligible for sales and use tax or property tax exemption. In this state, federal § 501(c)(3) status does not automatically provide an exemption from sales, use and property taxes. More information about the sales and use tax exemptions and applications is available on the Comptroller of Texas website and in the Texas administrative code. An accountant or attorney can provide answers to specific questions regarding your organization’s eligibility for exemption.
Corporate Income Tax Statute
Texas imposes a corporate income tax but offers an exemption to organizations with federal 501(c)(3) exempt status upon application.
Corporate Franchise Tax Statute
What You Need to Know About Sales Tax
Sales and Use Tax: Texas imposes a sales and use tax on religious organizations’ sales and only provides limited exemptions for certain items. Texas imposes a sales and use tax on religious organizations’ purchases but generally provides a broad and comprehensive, entity-based tax exemption for 501(c)(3) religious organizations’ purchases upon application. Tex. Tax Code § 151.310
State Tax Treatment of Unrelated Business Income: Not Present
Property Tax: Tex. Tax Code § 11.18 exempts charitable organizations that are engaged in certain specified charitable functions. According to Tex. Tax Code § 11.43, such an organization must apply for this exemption.
State-Specific Special Requirements
This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.
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**Please note that the following state profiles are forthcoming and will be published soon:Hawaii and Washington