When a Texas racetrack pays a totalisator company to process betting data for simulcast races, is that charge taxable, and does it matter whether the race is hosted in Texas or out of state?

Plain-English summary

A Texas pari-mutuel racetrack asked about the tax treatment of "totalisator" services — a computer system that processes, stores, and provides wagering information for simulcast horse races. When a race is broadcast from one track (the "guest" track) to another track receiving the signal (the "host" track), a totalisator company at the host location processes the betting data and charges the guest track a service fee based on the amount wagered.

The Comptroller answered two of three questions directly:

1. Yes, taxable — the Texas guest track owes tax on the totalisator service charge even when the host track is out of state. The totalisator service is a data processing service, not part of a nontaxable amusement service, and the guest track doesn't qualify for any multi-state "benefit of use" apportionment because it doesn't operate the out-of-state host track as one of its own locations. The charge was fully taxable before October 1, 1999, and only 80% taxable afterward, matching the general data processing services partial exemption effective that date.
2. Yes, taxable — the same treatment applies for Texas-based host track wagers.
3. Unanswered — insufficient facts. Whether renting a signal decoder placed at an out-of-state location is a taxable equipment rental depends on who actually controls the decoder; the Comptroller asked for more details (who provides it, who uses/controls it, what else that provider does) before deciding whether it's a genuine equipment rental or a service charge dressed up as a "rental."

What this means for you

Racetracks and simulcast wagering operations

Expect the fees you pay a totalisator company for processing simulcast wagering data to be taxable as a data processing service — regardless of whether the race you're broadcasting to (or receiving from) is hosted in Texas or out of state. Since October 1, 1999, only 80% of that charge is subject to tax.

Businesses renting signal decoders or similar remote equipment across state lines

Whether an arrangement is a true equipment rental (taxable differently, potentially outside Texas's reach depending on location/control) or a disguised service charge turns on who actually controls and uses the equipment — not just who pays for it or where it sits. Be ready to document the full relationship (provider's other activities, usage control) if you want a rental classification to hold up.

Accountants and tax professionals

This letter confirms wagering-data totalisator processing is squarely a data processing service (not an amusement service exempt or governed by different rules), subject to the general October 1999 20% partial exemption for data processing services. It also illustrates the Comptroller declining to rule on an underdeveloped fact pattern (the decoder question) rather than guessing — a useful reminder that "rental" labels aren't dispositive; operational control is.

Common questions

Q: Is a totalisator company's charge for processing racetrack wagering data taxable in Texas?
A: Yes — it's treated as a taxable data processing service, whether the simulcast race is hosted at another Texas track or an out-of-state track.

Q: How much of the charge is taxable?
A: 100% before October 1, 1999; only 80% for charges after September 30, 1999, matching the general data processing services partial exemption.

Q: Is renting a decoder placed at an out-of-state location automatically outside Texas tax?
A: Not automatically, and this letter didn't resolve that question — it depends on facts like who controls and uses the decoder, which weren't fully established here.

Q: Can I rely on this letter for my own racetrack or wagering operation?
A: No. This opinion is based on the facts presented; additional or different facts may change the opinion.

Citations and references

No Texas Tax Code section or administrative rule is cited by number in the original letter; the letter applies the general data processing services taxability framework, including the 20% partial exemption effective for charges after September 30, 1999.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200005288L

Original ruling text

May 10, 2000

Dear **:

Thank you for your inquiry concerning the taxability of totalisator services
performed for a Texas Pari-mutuel Racetrack being simulcast to other racetracks
(hosts) locations.

Each race that is simulcast involves a guest track and a host track. During
the live racing season in Texas, the races are transmitted and can be received
by any other track or entity that subscribes to the simulcast service. The
track receiving the simulcast becomes the host track. The host track can be
located either in or out of the state of Texas. At the host's location, a
totalisator company has installed computer equipment that processes, stores and
provides the information for betting purposes on each race.

The host track pays a percentage of the "handle" which is money collected for
bets at their own location to the totalisator company for the data processing
service of each race in which it choses to participate. The guest track
receives a listing of all places that simulcast the race and that had wagering
processed by the totalisator company.

This tells the host track how much was wagered, how much was paid out, and how
much the settlement from each location should be. Based on that information,
the totalisator company charges the guest track a service charge, a percentage,
or a minimum fee, whichever is greater.

Question 1: Is the Texas guest track responsible for tax on the service charge
assessed by the totalisator company for out-of-state host track's wagers?

Answer: Yes. The totalisator services are fully taxable data processing
services before October 1, 1999. After September 30, 1999, only 80% of the
charge for data processing services is subject to sales and use tax. The guest
track is not a multi-state customer because it has no locations where it
conducts business out of state. The host tracks are not locations operated by
the guest track so that the "benefit of use" provision is not an issue.

Question 2: Is the Texas guest track responsible for tax on the service charge
assessed by the totalisator company for Texas host track's wagers?

Answer: Yes.

In some cases, in order to promote a Texas Pari-mutuel Racetrack, the Texas
guest track will lease a decoder to be set up in an out-of-state location, such
as ** or **, in order to increase the amount of
revenues on races. The Texas guest track pays for these decoders but has no
control over the usage of the decoders.

Question 3: Because the decoders are located out-of-state, would the rental be
subject to Texas Sales and Use Tax to the Texas guest Racetrack?

Reply: I don't have enough information to answer this question. Please
provide me with details surrounding the decoder transaction. Because the guest
track has no control over the use of the decoder, I need detailed information
to verify that it is in fact a rental of a decoder and not a charge by a person
using the decoder to provide a service. For example, I would need to know who
provides the decoder, whether that person does anything else, how the decoder
is used, and who uses it or controls it.

We have addressed decoders used at racetracks receiving simulcast events (cable
television service) from racetracks that broadcast racing events. For example,
a Texas Pari-mutuel Racetrack would broadcast a signal of a live racing event
occurring at its racetrack to other racetracks in other locations for
consideration. However, in that situation the decoder was "leased" to the
racetrack receiving the signal.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 3-4675. The direct line is
(512) 463-4675. You also may write to Tax Policy Division, Comptroller of
Public Accounts. You may also e-mail our tax help section at:
[email protected]>

Sincerely Yours,

Tom Soto
Sales Tax Policy Division