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What is Tax Exempt Status and Who Gets it

Tax-exempt status is a specific tax consideration that is given to certain organizations or individuals. In basic terms, it is a status given to individuals or organizations by the Federal Government, which suspends partially or completely their obligation to pay taxes. In essence, a tax exemption status is meant to reduce or eliminate the tax burden on individuals and institutions. Charity organizations and veterans are examples of institutions and individuals that have tax exemption status for certain taxes. However, each jurisdiction within the U.S. and other countries usually possesses slightly different policies and laws that govern such tax-exempt status.

Tax-Exempt in the Global Stage

All around the world, different people continuously become eligible for tax exemption depending on their status and location. The jurisdiction an individual is within determines if they are to pay tax or not. For example, a person that is within the international duty-free location within ports of exit from a jurisdiction can enjoy tax exemption status. Therefore, a traveler will have the ability to purchase goods or services without paying any tax as long as the transaction is carried out within the tax-free zone.

Who Exempted From Tax

Different countries or jurisdictions provide tax exemptions to different individuals and institutions with specific characteristics. Individuals and institutions that are exempted from tax are usually clearly well-defined within a jurisdiction’s tax law. For the tax authority to grant tax exemption status within a jurisdiction, a few types of processes are adopted.

Tax Exemption Statues Processes

Each state, country, or jurisdiction follows a specific process before giving an entity tax-exempt status. There are basically two major approaches, which are described as follows.

  • A jurisdiction may decide to exempt an organization based on a set of definitions, which are enshrined within the law. For instance, in many countries, institutions classified as charities under the law are exempted from property tax. Such type of exemption aims to limit the scope of tax exemption, thereby limiting the likelihood of tax evasion. Therefore, an organization may only have a tax-exempt status for a specific tax rather than all taxes.
  • A jurisdiction may also exempt an institution from a wide range of federal taxes, which do not include employment taxes.

Religious Centers and Charities

In most jurisdictions around the world, religious centers and charities possess a tax-exempt status. This global policy is mostly adopted because of the type of role such institutions and organizations play within a society. Such institutions and organizations that are considered religious centers and charities include places of worship, orphanages, social clubs, food shelters, homeless shelters, half-way houses, and all institutions that provide social support to a population. Within the United States, all religious centers, charities, and similar institutions that are qualified to be eligible for tax exemption are granted this status. The only requirement for an institution to qualify for exemption from the payment of tax is for it to be created for a purpose that qualifies it for exemption under the law. Secondly, such an institution must register and seek for the tax-exempt status directly from the IRS.

Government Agencies and Departments

In most cases, governmental agencies and departments are completely exempted from the payment of tax. This exempt status usually extends to both federal, state, and local government agencies and departments. Also, this type of tax-exempt status for governmental institutions is generally applicable not only within America but all around the world.

Retirement Investments

Pension and retirement investments are in most instances, exempted from the payment of tax. This is usually done to protect such investments and ensure the continuity of such schemes. Likewise, individuals that open personal retirement investment funds usually receive such an advantage.


Schools of all types and levels usually receive some degree of tax exemption all around the world. Within the United States and other countries, educational institutions usually receive tax breaks for specific types of incomes and activities.

Exempted Persons

Specific types of individuals within the society may be given partial or complete tax-exempt status. Such types of individuals are usually involved in the development of their society. These individuals include:

  • Clergymen,
  • War or military veterans,
  • Taxpayers with offsprings and dependents within a specific age bracket.

The scope of the tax-exempt status that may be granted to these individuals may depend on several factors such as income, age, and much more.

Exempted Revenue and Property

Each jurisdiction has a slightly different type of policy that governs complete or partial tax-exempt for specific types of revenue and property. The types of properties that receive such types of tax-exempt status are highlighted below.

  • Properties utilized by religious centers and charities.
  • Properties utilized for the creation of taxable goods.
  • A property in which a taxpayer lives within.
  • Properties that are essential to human existence.

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