After Your IRS Determination Letter: Filing AP-204 or AP-205 in Texas

Receiving your IRS determination letter is a major milestone for your Texas nonprofit. But federal tax-exempt status and Texas state tax exemption are two completely separate things. To stop paying Texas sales tax on your purchases — and in some cases to be exempt from Texas franchise tax — you need to apply to the Texas Comptroller's office using either Form AP-204 or Form AP-205. Many nonprofits skip this step entirely and end up paying taxes they don't owe.

Great questions — and the answers matter for your organization's finances. Let's walk through it clearly.

Federal Exemption ≠ Texas State Exemption

This is the most important thing to understand. Your IRS determination letter confirms that your organization is exempt from federal income tax under Section 501(c)(3). It does not automatically exempt your organization from Texas state taxes.

In Texas, you must separately apply to the Texas Comptroller of Public Accounts for state-level tax exemptions. The two main exemptions most nonprofits seek are:

• Texas Sales and Use Tax Exemption — so your organization does not pay sales tax on qualifying purchases
• Texas Franchise Tax Exemption — so your organization is not subject to the Texas franchise tax (state business tax)

What Is Form AP-204?

Form AP-204 is the Texas Application for Exemption — Federal and All Others. This is the form used by organizations that have already received a federal tax exemption determination from the IRS — including 501(c)(3) organizations.

When you file AP-204, you are asking the Texas Comptroller to recognize your organization's exemption based on your federal IRS status. This is the most common form for Texas nonprofits that have already gone through the IRS process.

What Is Form AP-205?

Form AP-205 is the Texas Application for Exemption — Charitable Organizations. This form is used by organizations seeking exemption based on Texas state law as a charitable organization — specifically under Texas Tax Code Section 151.310 — rather than based on IRS federal exempt status.

AP-205 is typically used by organizations that either:

• Do not yet have federal IRS exemption but qualify under Texas state law as a charitable organization
• Are seeking a Texas sales tax exemption specifically as a charitable organization under Texas law rather than through the federal IRS route

Which Form Should Your Nonprofit Use?

What Does the AP-204 Application Require?

When completing Form AP-204, you will generally need to provide:

• Your organization's legal name and mailing address
• Your Federal Employer Identification Number (EIN)
• Your Texas Secretary of State filing number (if applicable)
• A copy of your IRS determination letter
• A copy of your organizing documents (Certificate of Formation)
• A copy of your bylaws
• Description of your organization's activities and purpose
• Information about your finances

What Does the AP-205 Application Require?

Form AP-205 requires similar organizational information, but since it is based on Texas law rather than IRS status, you will also need to demonstrate that your organization meets the Texas definition of a charitable organization. This typically includes:

• Evidence that your organization is organized exclusively for charitable purposes
• Demonstration that no part of net earnings benefits a private individual
• Your organizing documents and bylaws
• Financial statements or budgets showing how funds are used
• A detailed description of your charitable activities

How to Submit Your Application

Both AP-204 and AP-205 are submitted to the Texas Comptroller of Public Accounts. Applications can be submitted by mail or in some cases online through the Texas Comptroller's eSystems portal.

What Happens After Approval?

Once your Texas exemption is approved, the Comptroller will issue an exemption letter confirming your organization's status. You will use this letter — along with a Texas Sales and Use Tax Exemption Certificate — when making purchases to avoid paying sales tax.

• Keep your exemption letter on file permanently
• Provide a copy to vendors when making tax-exempt purchases
• Use Texas Form 01-339 (Sales and Use Tax Exemption Certificate) when purchasing on behalf of your organization
• Understand that not all purchases automatically qualify — exemptions apply to purchases directly related to your exempt purpose

Complete Texas Nonprofit Post-Determination Checklist

• Receive and securely store your IRS determination letter
• Determine whether to file AP-204 or AP-205 (most 501(c)(3) orgs use AP-204)
• Gather required documents — EIN, determination letter, Certificate of Formation, bylaws
• Complete and submit your application to the Texas Comptroller
• Receive your Texas exemption letter and store it permanently
• Obtain Texas Sales and Use Tax Exemption Certificates (Form 01-339) for vendor use
• Train staff and volunteers on proper use of tax exemption when purchasing
• Set up your nonprofit bookkeeping to track exempt vs. taxable transactions
• File your annual IRS Form 990 (or 990-EZ or 990-N) to maintain your federal exempt status

Disclaimer: This article is intended for educational and informational purposes only and does not constitute legal, tax, or accounting advice. Texas tax exemption requirements, application procedures, and forms are subject to change. The information provided reflects general guidance and may not apply to every organization's unique circumstances. Always consult a qualified CPA, tax professional, attorney, or nonprofit consultant before submitting any application to the Texas Comptroller or making decisions about your organization's tax exemption status. This post is part of an educational series and should not be relied upon as a substitute for professional advice tailored to your specific organization.