Texas Tax Code Section 151.309 exempts six categories of governmental entities from paying the state’s 6.25% sales and use tax, along with any local sales tax that would otherwise apply. The exemption covers the United States, the State of Texas, counties and cities and other political subdivisions, certain federal corporations and instrumentalities, and bordering states that extend Texas the same courtesy. A qualifying entity claims the exemption at the register by presenting either a completed Form 01-339 or a government purchase voucher issued in the entity’s name.
Who Qualifies
The statute names six categories, and an organization that does not fit one of them cannot use this exemption no matter how public its purpose.
- The United States government, including every federal department, agency, office, the military, and the federal courts.
- Unincorporated instrumentalities of the United States, such as certain federal trust funds or programs that operate without a corporate charter.
- Corporations wholly owned by the United States, meaning a federal agency or instrumentality owned entirely by the United States or by another corporation itself wholly federally owned. Federal credit unions organized under federal law are one example.
- The State of Texas, including every branch and agency, state universities, and other state-funded institutions.
- Counties, cities, special districts, and other political subdivisions. This covers public school districts, municipal utility districts, hospital districts, transit authorities, and anything else Texas law creates as a political subdivision.
- Bordering states and their governmental units, but only on a reciprocal basis. A Louisiana state agency buying from a Texas vendor is exempt only if Louisiana extends the same treatment to Texas agencies buying in Louisiana.
Nonprofits, charities, independent educational organizations, and volunteer fire departments are not covered by Section 151.309. Those entities fall under Section 151.310, which has its own application process through the Comptroller’s office.
What the Exemption Covers
The exemption applies to any taxable item sold, leased, or rented to a qualifying entity, as well as items the entity stores, uses, or consumes. That reaches tangible goods like office supplies, vehicles, and construction materials, plus taxable services supporting the entity’s operations. Both the 6.25% state rate and any local sales tax drop off, which can be worth as much as 8.25% in jurisdictions at the combined cap.
The purchase has to be for the entity’s official use. An employee buying personal items such as meals, toiletries, or clothing cannot claim the exemption, even if the organization reimburses the cost. Someone traveling on official business still owes sales tax on personal expenses like parking, whether the agency reimburses actual costs or pays a per diem.
How to Claim the Exemption at the Point of Sale
A qualifying entity has two documentation options. The first is Form 01-339, the Texas Sales and Use Tax Exemption Certification. The second, which many government buyers overlook, is a government purchase voucher: a purchase order issued on the entity’s letterhead or through its procurement system is enough on its own, with no separate certificate required.
Whichever route is used, payment should come directly from the entity. A government-issued purchase order, a government credit card, or an electronic transfer from public funds all establish that the financial obligation sits with the entity. When an employee pays out of pocket with personal funds and seeks reimbursement later, the exemption generally will not apply to that transaction, because the seller has no way to verify exempt status at the time of sale.
Filling Out Form 01-339
Form 01-339 is available from the Texas Comptroller’s website and handles both resale and exemption claims. The purchaser enters the entity’s full legal name and address, describes the items or services being purchased, and states the reason for the exemption. For a government entity, that reason identifies the organization as a governmental body and references Section 151.309 as the legal basis. An authorized representative signs and dates the form, certifying the information. Any blank field can get the certificate rejected during an audit.
A single form can serve as a blanket certificate covering all future purchases from the same vendor, which saves time for entities that order regularly from the same suppliers. The certificate does not expire while the entity’s exempt status remains valid, though blanket certificates are worth reviewing periodically to confirm the information is still accurate.
If the Entity Does Not Appear in the Comptroller’s Database
The Comptroller runs an online Tax-Exempt Entity Search, but governmental entities covered by Section 151.309 are exempt by law and do not have to apply for exemption with the Comptroller. Many federal, state, and local government entities therefore will not show up in the search. A seller who cannot find an entity can call the Comptroller at 800-252-5555 or email exempt.orgs@cpa.texas.gov to verify.
Contractors Working on Government Projects
Private contractors doing construction or remodeling for a government entity do not charge sales tax on the work itself. Whether the materials they buy are exempt depends on how those materials are used, and the rule lives in Section 151.311 rather than 151.309.
Materials that become a permanent part of the building or structure are exempt: concrete, lumber, wiring, plumbing fixtures, anything incorporated into the finished project. Consumable supplies that are necessary for the job and completely used up at the site also qualify. Machinery, equipment, and their accessories and replacement parts stay taxable even when used exclusively on a government project. The contractor claims the exemption on qualifying materials by giving suppliers an exemption certificate.
The “completely consumed” standard is strict. The item has to be destroyed or used up after a single use. If a piece of equipment can be reused on another project, it does not qualify, and rented or leased equipment never qualifies no matter how it is used. This is where contractors most often slip up: the building materials are exempt, but the tools and machines used to install them are not.
Hotel Occupancy Tax Is Separate
The Section 151.309 exemption does not carry over to hotel occupancy tax, which has its own rules and its own form.
Federal employees on official business are exempt from both state and local hotel occupancy taxes and claim it with Form 12-302 plus proof of federal employment. Most Texas state agency employees pay the hotel tax at the front desk and seek reimbursement through their agency travel voucher; only designated state officials such as agency heads, judicial officials, and members of the Texas Legislature carry identification that grants a direct exemption from both state and local hotel taxes.
Penalties for Misuse
Fraudulent use of an exemption certificate is a criminal offense under Section 151.707. The charge scales with the amount of tax avoided and applies to anyone who intentionally creates a false certificate, uses a certificate known to be fraudulent, or tampers with a certificate to conceal its true content.
- Less than $20 in tax avoided: Class C misdemeanor.
- $20 to $199: Class B misdemeanor.
- $200 to $749: Class A misdemeanor.
- $750 to $19,999: third-degree felony.
- $20,000 or more: second-degree felony.
The felony threshold at $750 in avoided tax arrives faster than most people expect. On a single purchase at the full 8.25% combined rate, it takes less than $10,000 in purchases to cross it. Sellers who knowingly participate in a fraudulent exemption face the same exposure, which is why legitimate vendors insist on properly completed certificates and refuse transactions that do not look right.