If a company negotiates free perks (golf, water park passes, bike rentals) for a property-management company's rental guests and pays sales tax on those items itself, does it owe additional sales tax on the fee the property manager pays it?

Plain-English summary

A Delaware company contracts with vacation-rental property management companies (PMCs) to offer their guests free perks — a round of golf with cart rental, water park or museum admission, a bike tour, a fishing-pier day pass, a zip line tour, kayak or bike rentals, and food coupons. The company negotiates with local golf courses, museums, and rental outfits to line up these items, and pays sales tax directly to each vendor when a guest actually uses one. In exchange, the PMC pays the company a flat fee per occupied rental night, regardless of whether guests use any perks; the PMC then bills its guests one lump-sum rental charge (which includes hotel tax) with no separate charge for the perks.

The Comptroller ruled the company is not selling a taxable amusement service to the PMC or the guest. Only specifically enumerated services are taxable in Texas, and what this company sells — the service of lining up and prepaying for a bundle of amusement services and rental property at a good price — isn't one of them. Because the company is buying these items for its own use in performing that service (not reselling them in the same form to the PMC or guest), it can't buy them tax-free under the resale exemption; it must keep paying sales tax to each vendor directly, just as it already does.

What this means for you

Perk brokers, concierge services, and hospitality vendors

If you negotiate and prepay for third-party services or goods (golf, activities, rentals) that a hospitality business gives away free to its own customers, and you're paid a flat fee that doesn't track actual usage, you're generally providing a nontaxable service — but you can't buy those underlying items tax-free using a resale certificate, because you're not reselling them in the form you bought them. Keep paying sales tax to each vendor as you go.

Property management companies and hotels offering "free" guest perks

Bundling free activities into a single lump-sum rental rate (rather than itemizing and charging separately for them) supports treating the arrangement as nontaxable — there's no separate charge for the perk that the Comptroller could tax. If you start itemizing and separately charging guests for these add-ons, the analysis could change.

Accountants and tax professionals

The key move in the analysis is Section 151.006(c), which excludes from "sale for resale" any purchase made to perform a service that itself isn't taxed under Chapter 151. Because the company's overall service (negotiating and prepaying access) isn't an enumerated taxable service, it can't claim resale on its underlying purchases — so the tax gets paid once, at the vendor level, and never again downstream.

Common questions

Q: Is the company allowed to buy these amusement services and rentals tax-free using a resale certificate?
A: No. Because its own service to the PMC isn't a taxable service, its purchases don't qualify as "sales for resale" under Section 151.006(c) — it must pay sales tax directly to each vendor.

Q: Does the PMC or the guest owe any tax on the free perks?
A: No additional tax beyond the hotel tax the guest already pays on the lump-sum rental charge — there's no separate charge for the complimentary items, so nothing else is being "sold" to the PMC or the guest.

Q: Would the answer change if the PMC charged guests separately for the perks?
A: Possibly — this ruling turns on the PMC's guests paying one bundled rental rate with no itemized charge for the extras. Separately charging for the perks could change how they're taxed.

Q: Can other perk-broker businesses rely on this ruling?
A: No. It's a private letter ruling binding on the Comptroller only for the taxpayer and facts submitted, and it cannot be relied on by any other taxpayer — a similar arrangement with different billing mechanics could come out differently.

Citations and references

Statutes:

• Tex. Tax Code § 151.051 (Sales Tax Imposed)
• Tex. Tax Code § 151.010 ("Taxable Item")
• Tex. Tax Code § 151.0101 ("Taxable Services" — enumerated list)
• Tex. Tax Code § 151.006(a)(1), (c) ("Sale for Resale" and its service exclusion)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201808022L

Original ruling text

Aug. 28, 2018

RE: Private Letter Ruling No. 20170920151608

* Taxpayer No. *

Dear ***:

We issue this private letter ruling in accordance with Rule 3.1 (Private Letter Rulings and General Information Letters).[ENDNOTE: 1] We are responding to your request dated Sept. 12, 2017, and your supplemental submission we received on Oct. 20, 2017. Detrimental reliance relief is provided in accordance with Rule 3.10 (Taxpayer Bill of Rights).

You requested a private letter ruling on the taxability of complimentary activities provided to a Property Management Company’s (PMC's) rental guest under a Program Agreement (Agreement) between *** (Taxpayer), and the PMC.

Facts Presented

Taxpayer is a Delaware limited liability company that enters into an Agreement with a PMC to provide complimentary items to PMC’s property rental guest. Examples of complimentary items include: a round of golf with cart rental; admission to a water park or museum; a bike tour; a day pass to a fishing pier, with rod rental and bait; a zip line tour; kayak or bike rentals; and coupons for food items (e.g., snow cones, ice cream). [ENDNOTE: 2]

Taxpayer negotiates with local service providers, restaurants, and rental companies to fulfill its obligation under the Agreement to provide the complimentary items. Taxpayer does not sell these items to the PMC or PMC’s rental guest. Instead, Taxpayer pays sales tax directly to each service provider, restaurant, and rental company after a guest accesses or uses the item.

Taxpayer provided a sample Agreement it enters into with a PMC. Under the Agreement, the PMC guarantees that the complimentary activities will be part of all daily and weekly rentals for all rental properties managed by the PMC. The PMC sends a daily report to the Taxpayer via email or automated software listing all guests for the previous night.The Taxpayer delivers to all registered guests a card containing the guest’s name, arrival and departure dates, as well as the assigned rental number.

Guests staying at PMC properties may use complimentary items within the amusement service provider or retailer’s normal business hours. To claim the complimentary items, the PMC's rental guest makes a reservation by calling Taxpayer’s personnel or using an automated software application. After reserving the complimentary item, Taxpayer sends the rental guest an email that acts as either the admission document giving them access to the amusement or rental service or the coupon for free food items that is only valid during the guest’s stay at the PMC property.

Under the Agreement, the PMC sends Taxpayer a monthly report showing the number of rental properties occupied for the preceding month. The PMC pays Taxpayer an agreed flat fee for each night a guest occupies a property, regardless of whether the guest uses the complimentary items.

The PMC bills each rental guest a lump-sum charge for the property rental. The guest pays all applicable hotel tax at the time of rental.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Is the Taxpayer selling an amusement service to the PMC or rental guest?

Ruling: No, the Taxpayer is not providing a taxable service, nor is it reselling amusement services or tangible personal property.

Analysis: Sales tax is imposed on each sale of a taxable item in Texas. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Only those services specifically enumerated in Section 151.0101 (“Taxable Services”) are taxable.

Taxpayer is not providing a taxable service in performing its Agreement with a PMC. Taxpayer’s Agreement with a PMC allows the PMC to provide its guests complimentary access to a combination of amusement services and tangible personal property near the PMC rental property. The PMC pays Taxpayer to find vendors willing to provide taxable items at a price that makes it economical for the PMC to offer them to rental guests free of charge. The service of negotiating and prepaying for access to a combination of taxable services and tangible personal property is not a taxable service.

As a provider of a service not enumerated in Section 151.0101, Taxpayer should continue to pay sales tax to each amusement service provider, retailer, or rental company. Taxpayer may not purchase these items tax-free because it is not reselling them. See Section 151.006 (“Sale for Resale”), in part, defines a “sale for resale” as the sale of a taxable item to a purchaser who acquires it for the purpose of reselling it with or as a taxable item in the form or condition acquired or as an attachment or integral part of another taxable item. Section 151.006(a)(1). However, the statute specifically excludes from that definition a sale of a taxable item to a purchaser who acquires it for the purpose of performing a service that is not taxed under Tax Code, Chapter 151. Section 151.006(c).

Taxpayer purchases the amusement services and tangible personal property for use in performing its obligations under the Agreement. Neither the PMC nor the rental guest pays Taxpayer for an amusement service or tangible personal property. The PMC charges all rental guests a lump-sum room rate charge for each occupied night whether or not the rental guest uses the complimentary item. There is no separate charge for the complimentary items. Because the PMC is neither purchasing taxable amusement services or tangible personal property nor selling them in the form or condition in which they are acquired, it is not reselling tangible personal property or taxable services to the rental guest. Section 151.006.

Taxpayer sells the PMC a nontaxable service. When Taxpayer purchases an amusement service or purchases or rents tangible personal property used to provide its service, Taxpayer must pay sales tax directly to each amusement service provider, rental company, and retailer.

The Texas Tax Code are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20170920151608.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTES:

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.

2. www.**.com (last viewed on Feb. 1, 2018).