When one company charges a lump-sum guide-service fee for an adventure race and a related company separately rents out kayaks and gear, who owes sales tax on what?

Plain-English summary

A taxpayer operated two related businesses. "Company 1" is a guide service that partners with private ranches, private parks, Army Corps of Engineers parks, and Texas Parks and Wildlife to host "adventure races" -- events combining orienteering, hiking, trekking, running, mountain biking, kayaking or canoeing, and team challenges, with a share of proceeds going to conservation funds or local nonprofits (like a county library or Boy Scout troop) when held at a private site. "Company 2" is a separate gear company that sells and rents kayaks, compasses, tents, and other outdoor recreational supplies at the events, charging a rental fee for kayaks plus a separate race entry fee.

The taxpayer already understood everything Company 2 sells or rents is taxable and asked whether the overall setup was taxed correctly. The Comptroller confirmed a split treatment:

• Company 1's guide-service charge is not taxable. A single charge to a race participant covering the guide service itself -- orienteering, hiking, trekking, running, team challenges, etc. -- is not a taxable sale.
• Company 2 must collect tax on everything it sells or rents directly to participants (kayaks, compasses, tents, other gear), and can buy its own inventory tax-free using a resale certificate, since it's reselling/renting it onward.
• The wrinkle is bundling. If Company 1 folds equipment into its own single lump-sum race charge (rather than the participant renting directly from Company 2), Company 1 itself becomes the "customer" for that equipment and must pay sales tax to Company 2 on it -- the participant, in that scenario, isn't the one taxed on the equipment; Company 1 is, as an input cost of its otherwise-nontaxable guide service.

What this means for you

Outdoor guide services, adventure race organizers, and similar experience providers

A pure guide/instruction/event-facilitation charge is generally not taxable in Texas, distinct from equipment sales or rentals. But keep your billing structure clean: whether you bundle equipment into your own fee or let participants rent directly from a gear vendor changes who owes the sales tax and on what amount.

Related companies splitting event services and equipment rental

If one company (like a guide service) bundles a related company's rental equipment into its own lump-sum charge, the bundling company becomes the taxable "customer" for that equipment -- track and pay that tax as a cost of doing business, separate from what you charge participants.

Equipment rental companies serving events

Collect and remit tax on your own direct sales/rentals to end users, and use a resale certificate to buy your rental inventory tax-free in the first place.

Common questions

Q: Is a guide fee for an adventure race (hiking, biking, kayaking, team challenges) taxable in Texas?
A: No, per this letter -- a single charge for the guide service itself is not taxable.

Q: Who pays tax if the guide service includes rental equipment in its own price?
A: The guide service itself pays tax to the equipment company on that rental, rather than the participant being taxed directly.

Q: What if a participant rents a kayak directly from the gear company instead?
A: Then the gear company collects sales tax directly from the participant on that rental, same as any other taxable equipment rental.

Q: Does this letter bind the Comptroller for other guide/event businesses?
A: No -- this is an informal 2001 letter addressing one taxpayer's specific two-company structure, not a modern Private Letter Ruling or General Information Letter, and it cannot be relied on by anyone else.

Citations and references

No statutes or rules were cited by section number in this letter; it applies the Comptroller's general framework distinguishing nontaxable services from taxable sales/rentals of tangible personal property, plus standard resale-certificate mechanics.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200109550L

Original ruling text

September 18, 2001

Dear **:

You state the following facts: You formed ** (I will refer to as
Company 1) and ** (I will refer to as Company 2). Company 1 is a
guide service that works with private ranches, private parks, Army Corp of
Engineer Parks and Texas Parks and Wildlife to host adventure races and to
promote the parks.

An "adventure race" typically includes orienteering, hiking, trekking, running,
mountain biking, kayaking, or canoeing and team challenges. Each park receives
exposure from the event. A portion of the proceeds goes to FUND A or FUND B.
When the race is held at a private ranch or park a portion of the proceeds go
to the local non-profit organization such as COUNTY LIBRARY or the local Boys
Scout Troop.

Company 2 is a gear company that sells and rents kayaks, compasses, tents,
outdoor gear, and other outdoor recreational supplies at the events. You set
up your business to charge a rental fee for either an inflatable or hard shell
kayak and a separate entry fee for race. You know that everything that Company
2 sells or rents is taxable. You asked if you are paying taxes correctly.

Response: The single charge by Company 1 to the race participant for the guide
service that includes orienteering, hiking, trekking, running, team challenges,
etc., is not taxable. It is not clear if Company 1 provides equipment as part
of the single charge. However, if it does provide equipment for the single
charge, Company 1 should pay sales tax to the rental company (Company 2) for
all equipment provided. I presume that Company 2 purchased its taxable
equipment and supplies (kayaks, compasses, tents, outdoor recreational supplies
etc.) with a resale certificate. Company 2 must collect tax from the customer
on items it sells or rents.

Company 1 as the customer, must pay tax to Company 2 on the rental of equipment
that is included in the lump-sum charge to the race participant. The race
participant must pay tax on equipment bought or rented directly from Company 2.

This opinion is rendered based on the facts presented. Other facts, though
similar, may yield different results.

If you have any questions or require additional information, you may submit
inquiries to our tax help e-mail address at , call
1-800-531-5441, extension 6-5809 or write to Tax Policy Division, Post Office
Box 13528, Austin, Texas 78711-3528.

Sincerely,

Emilio S. Lerma
Tax Policy Division