Can a private boat/yacht club buy the floating drums for its members' boat-slip docks tax-free under a resale certificate, since the club already charges its members sales tax on boat slip rental? And can it buy free-to-use member boats tax-free the same way?

Plain-English summary

This is an internal Tax Policy Division memo (audit guidance) answering two questions about a private boat/yacht club. The club charges members monthly dues, boat slip rentals, and food/liquor purchases (paying the higher mixed beverage tax on liquor and sales tax on everything else). It has permanent land-anchored docks with floating docks attached, where members keep sailboats and power boats and pay rental for the slips.

Question 1: Can the club buy the floating drums for the docks tax-free, since it already charges tax on the boat slip rental? No. Rule 3.298(a)(1)(G) defines "amusement service" to include private clubs providing recreation or sports facilities to members, and Rule 3.298(a)(5) folds dues, fees, and special assessments into the taxable sales price of that amusement service. Rule 3.298(b) specifically lists boat slip rental fees as part of the amusement service's price — not as a separate real- or personal-property rental (citing an earlier STAR ruling, 9202L1157F09, rejecting a similar argument that golf cart storage fees were real-property rental rather than part of an amusement charge). The floating docks are tangible personal property, but the club can't buy them tax-free under a resale certificate because care, custody, and control of the boat slips are never transferred to the members, as Rule 3.298(f) requires for a resale exemption. The club owes tax on the drums and other dock materials (Rule 3.298(f)(4)) — and must also pay tax on materials and services used to repair the floating docks.

Question 2: Can the club buy boats it lets members use for free (as part of membership) tax-free with a resale certificate? Yes. Because these boats — including small paddled dinghies, on which sales tax is otherwise due — are actually transferred to members as part of a taxable amusement service (the membership), the club can issue a resale certificate to buy them tax-free.

The contrast between the two answers turns entirely on whether possession/control of the item passes to the member: the docks stay under the club's control (members just use the water space), while the boats are handed over to members directly.

What this means for you

Private clubs, marinas, and yacht/boat clubs

Charging your members sales tax on a fee (like boat slip rental) doesn't automatically let you buy the underlying equipment tax-free. The resale exemption only applies to items where you actually transfer care, custody, and control to the member — equipment you retain control over (like floating docks members merely use) stays taxable to you as the purchaser, even if the usage fee itself is taxed as part of the amusement service.

Clubs providing member equipment (boats, gear, etc.) as part of dues

Where equipment is genuinely handed over to members for their use as part of a taxable membership/amusement service, you can generally buy that equipment tax-free with a resale certificate — track which items are transferred to members' possession versus which remain under your own control.

Accountants and tax professionals

This letter is a precise illustration of the "care, custody and control" test for resale certificates on amusement-service inputs — and note the added STAR alert (see disclaimer) pointing to the current text of Rule 3.285 for up-to-date guidance on this standard, since Rule 3.285 has been amended since this 2000 letter was issued.

Common questions

Q: If we charge members sales tax on boat slip rental, can we buy dock materials tax-free?
A: No. Per this letter, the club retains control of the docks (members don't get care, custody, and control of them), so the resale exemption under Rule 3.298(f) doesn't apply — the club owes tax on the drums, dock materials, and repair materials/services.

Q: Can a club buy boats given free to members as part of dues tax-free?
A: Yes, per this letter, because those boats are actually transferred to the members as part of a taxable amusement service.

Q: Is boat slip rental treated as real property rental or as part of an amusement service charge?
A: As part of the amusement service charge, per Rule 3.298(b) — not as a separate real- or personal-property rental.

Q: Is this 2000-era analysis still current?
A: STAR flags this document with its own alert pointing readers to the amended (11/01/2017) version of Rule 3.285 for current guidance on the care-custody-control standard discussed here — check the current rule text before relying on the details.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.298(a)(1)(G) (amusement services — private clubs)
• 34 Tex. Admin. Code Rule 3.298(a)(5) (sales price of amusement service — dues, fees, assessments)
• 34 Tex. Admin. Code Rule 3.298(b) (boat slip rental as part of amusement service charge)
• 34 Tex. Admin. Code Rule 3.298(f) (care, custody and control required for resale exemption)
• 34 Tex. Admin. Code Rule 3.298(f)(4) (tax owed on dock materials)
• 34 Tex. Admin. Code Rule 3.285 (Resale Certificates; Sales for Resale, current version per STAR's own alert)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200006396L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

DATE: June 9, 2000

TO: Becky R. Redlin, ** Audit Office

FROM: Eddie C. Washington, Tax Policy

SUBJECT: ** (TP)

Question 1: TP, a corporation, is a private club that charges its members
monthly dues, boat slip rentals, food purchases an liquor purchases. TP pays
the higher mixed beverage tax on their liquor sales. TP charges its members
sales tax on all the other dues. TP has permanent docks that are attached to
the land and have piers drilled into the lake. Attached to these permanent
docks are floating docks where members keep their boats (sailboats and power
boats) and they pay tax on the rental. Because TP charges tax on the boat slip
rental, can TP buy the floating drums for the floating boat docks tax free?

Answer: No. Rule 3.298(a)(1)(G) concerning amusement services defines an
amusement service to include private clubs and organizations that provide
recreation or sports facilities to its members. Rule 3.298(a)(5) defines the
sales price of the amusement service to include "dues, initiation fees, and
other charges, assessments, and fees required for a special privilege, status,
or membership in a private club or organization."

Rule 3.298(b) specifically lists boat slip rental fees, among other special
charges and assessments to club members, as part of the sales or purchase price
of the amusement service rather than the rental of real or personal property.
See STAR document 9202L1157F09 in which the comptroller rejects an argument
that golf cart storage fees are not the rental of real property but part of the
charge for an amusement service. The floating docks are tangible personal
property, but TP may not buy them tax free under a resale certificate because
care, custody and control of the boat slips are not transferred to the members
as prescribed in Rule 3.298(f). TP uses the floating docks to provide amusement
services and owes sales tax on the purchase of the drums and other materials
[see Rule 3.298(f)(4)].

TP must pay sales tax on materials and services bought to repair the floating
docks

Question 2: TP also allow its members to use boats with no charge as part of
their membership. TP contends that it charges sales tax on the membership dues
and TP wants to know if it can purchase the boats tax free. One type of boat is
a small dinghy which is paddled and sales tax is due on those. Can TP issue a
resale certificate to buy these boats tax free?

Answer: Yes. These boats are transferred by the club to its members as a part
of a taxable amusement service.

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